
Class HP-) *4l 
Book i E*h 



Copyright}! . 



COPYRIGHT DEPOSE 



QUIZ MANUAL 



FOR THE USE OF TEACHERS IN 
CONNECTION WITH 



Practical Law 



A text-book on the subject of 
Commercial Law 



ELLIS PUBLISHING COMPANY 
Battle Creek, Mich. 






Copyright 1912 

by 

Ellis Publishing Company 



V 



©CI.A309049 



SUGGESTIONS FOR THE USE OF PRACTICAL 
LAW QUIZ MANUAL 

To the ingenious teacher various methods of using this Manual will 
present themselves to meet the sundry needs and requirements of differ- 
ent classes of pupils and under varying circumstances. 

First. With a well-matured and studious class of students, the 
teacher will probably use the Manual only as a guide for outlining a 
logical series of questions on the lesson in hand, to be used during class 
exercise only, for the purpose of drawing out and stimulating individual 
members of the class from time to time, as seems necessary, thus enliv- 
ening general class discussion 

Second. With a less matured class, it will sometimes be found 
advantageous to use one recitation hour as a class study period, the 
teacher providing the questions as outlined in the Manual and the class 
unitedly searching out the answers thereto in their text, "Practical Law." 
They signify by raised hands when the answers are found, and individu- 
ally respond when called upon by the teacher. Then, at the next 
recitation period for this subject, recite with books laid aside, as outlined 
in the first plan. This plan will be found to work well with "Night 
School" classes, the members of which have little or no time for outside 
or home study. 

Third. With exceedingly dull pupils, or those who will not study, 
except under strong pressure, we have known of good results being 
attained by supplementing plan number 2, as follows: During the last 
quarter of a period of study as outlined in plan 2, have texts laid aside 
and require the class to copy, from dictation by the teacher, the ques- 
tions just gone over. Then dismiss the class with instructions to search 
the text for their answers, to write them out neatly, and to hand them 
in for examination before the beginning of the recitation the next day. 
After gathering the papers at the following class period proceed with 
the recitation as outlined under plan 1. 

These, with various alterations and modifications which will readily 
suggest themselves to every wide-awake teacher, with the continued use 
of the Manual, will greatly facilitate the teaching of this subject, and 
make of what is too often considered a "dry" subject, one of absorbing 
interest and great profit. 



PRACTICAL LAW 
QUIZ MANUAL. 



INTRODUCTION. 

Art. 1. — Practical Law 

(a) Define Practical Law. 

Ans. By Practical Law we mean the rules of conduct governing 
ordinary business affairs. 

(b) What of the necessity of. a knowledge of this subject ? 
Ans. Knowledge of Practical Law is necessary to safe dealing. 

(c) Why is it one's duty to know Practical Law? 

Ans. It is the legal duty of every good citizen to know the law, 
hence, ignorance of the law excuses no one. 

Art. 2. — The Purposes of Law. 

Give the three principal purposes of law. 

Ans. (1). In the business world law establishes order, by providing 
uniform rules of commercial conduct. 

(2). Law protects property by defending the rights of the 
owner. 

(3). Law protects rights by forbidding, punishing and re- 
dressing wrongs. 

Art. 3.— The Study of Law. 

(a) What is necessary to become accomplished in the transaction 
of business? 

Ans. Mastery of the principles by which business is governed. 

(b) Why is this true today, to a greater degree than formerly ? 
Ans. Because today business men are generally much better educated 

than formerly, hence the uninformed in law are likely to suffer. 

(c) Can you suggest some ways in which business men uninformed 
in law are likely to suffer? 

Ans. (1) They are prone to overlook necessary precautions. 

(2) Through lack of proper care they frequently find them- 
selves victims of errors, deceptions, entanglements, and loss. 

(d) Is this study especially difficult ? 

Ans. No, it is not difficult. Law is mainly common sense. 

(e) Upon what is every law said to rest? 

Ans. Upon some reason; when we have grasped the reason, we know 
the law. 

(5) 



PRACTICAL LAW 

Art. 4. — Natural Justice- 

(a) What attempt does the law make toward securing natural jus- 
tice? 

Ans. To enforce what is right between man and man, ever keeping 
in mind the public welfare. 

(b) What of conflicting interests between the few, and the many? 
Ans. When the interests of individuals, or of the few, conflict with 

the rights of the many, (the. public) , the rights of the public will prevail. 

(c) Of what does the common law consist ? 
Ans. The principles of natural justice. 

(d) How has the common law gained its existence and its name ? 
Ans. The common law exists without legislative enactment, and 

derives its name from the fact that it is common to the whole country. 

(e) When do the courts base their opinions upon the common law? 
Ans. Whenever they are called upon to decide a matter to which no 

statute applies. 

(f) How are the courts aided and guided in basing opinions upon 
the common law? 

Ans. They are aided, and to some extent guided, by prior decisions 
called "precedents," rendered in cases involving the same or similar facts. 

Art. 5. — Statute Law. 

(a) When are laws called statutes? 

Ans. When they are reduced to written form by legislative enact- 
ment. 

(b) In what does the value of statutes consist? 

Ans. The peculiar advantage of the statutes over the common law 
consists in their greater certainty. 

(c) In what do the statutes afford greater certainty ? 

Ans. Courts and people may differ in their views of what constitutes 
natural justice, but there is less likelihood of doubt about the meaning 
of a printed page. 

(d) What is the "Negotiable Instruments Law?" 

Ans. Occasionally several states pass identical laws on some sub- 
ject of general interest. Thus in 1906 thirty states had adopted a uni- 
form code known as the "Negotiable Instruments Law." 

(e) What assurance have we of the wisdom of this statute ? 

Ans. Into this code have been gathered the rules that have grown 
up through centuries of practical experience and adjudication. 

(f ) What is said of the present condition of our laws ? 
Ans. At present, our laws are in confusion. 

(g) What is the general tendency of the states in this regard ? 
Ans. As instanced in the case of the "Negotiable Instruments Law," 

the general tendency of the states is toward greater harmony in legisla- 
tion. 



QUIZ MANUAL 7 

(h) What should be constantly borne in mind by the student, re- 
garding the statutes of the various states? 

Ans. The fact that the statutes and court decisions of the several 
states differ, and that consequently he should refer to the laws of his 
own state for that precise local information which the scope of this book 

forbids. 

Art. 6. — Constitutionality. 

(a) From whence does this government derive all its powers? 
Ans. From the consent of the governed. 

(b) Give a trite saying of Abraham Lincoln indicative of the nature 
of our government. 

Ans. This is a "Government of the people, by the people, and for 

the people." 

(c) How primarily is this consent of the people given ? 

Ans. Through the constitution of the United States, which is "the 
supreme law of the land. " 

(d) Does each state recognize a similar supreme law? 

Ans. Yes, the constitution of each state is that state's supreme 
law, but it must not conflict with the constitution of the United States. 

(e) What is said of laws in conflict with their governing constitu- 
tion ? 

Ans. They are void, and are spoken of as being "unconstitutional." 
They are of no force for any purpose whatever. 



WANT OF DUE CARE. 

Art. 7. — Importance of the Subject. 

(a) What can you say of the importance of the subject "Want of 
Due Care?" 

Ans. Because of its supreme importance this subject is placed first. 

(b) From what are nearly all misunderstandings, disagreements 
and lawsuits said to arise ? 

Ans. From the want of due care. 

(c) What can you say of the results of precipitate haste in business 
transactions ? 

Ans. Precipitate haste has ruined hundreds where it has profited one. 

(d) What ought one to do if in doubt? 

Ans. Seek competent counsel. "He who undertakes to be his own 
lawyer is apt to have a fool for a client. " 

(e) Suppose you have done this but are still in doubt; what is it 
usually best to do ? 

Ans. Sacrifice time and profit to safety. 

(f) Is there ever danger of becoming over-cautious? 

Ans. Yes, one should be alert in the avoidance of danger, but not 
timid; prudent, but not prudish. 



8 PRACTICAL LAW 

(g) Upon what does the accumulation of wealth largely depend? 
Ans. Upon the preservation of profits. The retention of wealth 
depends upon the avoidance of losses. 

Art. 8. — Some Special Cautions. 

Name as many as you can of the ten special cautions given for safe 
dealing. 

Ans. (1) So keep and deal with your property that it cannot injure 
others. 

(2) In buying property of any kind, be sure of the seller's title. 

(3) In ordering goods, be explicit as to kind, quantity, quality, 
price, and time and manner of delivery. 

(4) In receiving goods, examine them promptly and report all 
discrepancies without delay. 

(5) In dealing with the agent of another, assure yourself of 
his authority. 

(6) Sign no document without first knowing its contents and 
understanding the extent of liability that, by signing, you will assume. 

(7) Execute no unconsidered contract. 

(8) Assume no indefinite obligation. 

(9) Before investing, investigate. 

(10) Exercise the utmost care in selecting business associates. 
In the words of Thomas Jefferson, "Avoid entangling alliances." 

Art. 9. — Due Care. 

What is due care? 

Ans. (1) Such caution as a prudent person would use under like cir- 
cumstances. 

(2) It is "care according to need. " 

(3) It is care in proportion to danger. 

Art. 10. — Negligence. 

(a) Define negligence 

Ans. The want of due care. 

(b) Of what may negligence consist? 

Ans. An act or an omission. It is a failure to perform a legal duty. 

Art. 11. — The Penalty of Negligence. 

(a) What is the penalty of negligence? 

Ans. If my negligence damages another, who is himself without 
fault, I must answer for it; I must compensate him for his loss or injury 

Art. 12. — Care in One's Own Act- 

(a) What does the law hold regarding one's own acts? 

Ans. The law holds that everyone intends the natural and direct 
results of his own acts. 

(b) State the liability for cause of injury started. 

Ans. The person who sets a cause of injury into motion must answer 
for the consequences. 



QUIZ MANUAL 9 

Art. 13. — Contributory Negligence. 

(a) Who, only, is the law intended to aid? 
Ans. Those who are using due care. 

(b) If A. is negligent and B. is injured thereby, what must B. show 
in order to hold A. strictly accountable ? 

Ans. When a person's own want of care contributes to his injury, 
he cannot hold another responsible for any portion of the injury, therefore 
B. must show that he himself was without fault. 

(c) Why is this principle held to be right? 

Ans. Because to do otherwise would be to permit the injured party 
to profit by his own neglect. 

Art. 14. — Proximate and Remote Cause- 

(a) In order to hold a person liable for an injury, what must be done ? 
Ans. He must be shown to be responsible for the thing which caused 

the injury complained of. 

(b) If there be several possible causes, which cause will the law 
say the injury arose from ? 

Ans. From the proximate, or nearest, cause. 

(c) What then is the difference between a remote and proximate 
cause ? 

Ans. A remote cause is any one of several possible, but not immedi - 
ate, causes. A proximate cause is the nearest, most direct cause. 

Art. 15 — Negligence in Executing Written Instruments 

(a) Name some things which, in writing negotiable instruments 
such as notes, checks, drafts, etc. , would constitute negligence. 

Ans. (1) Leaving blanks unfilled. 

(2) Writing figures and not words for amounts. 

(3) Carelessly formed figures or letters. 

(4) Filling out instrument with lead pencil. 

(5) Carelessness and lack of sameness in signature. 

(b) What may be the consequence if an instrument bearing any 
of these points of negligence should come into the hands of an innocent 
third party for value, some changes having been previously made? 

Ans. The negligent maker may be bound by the changed terms. 



PROPERTY. 

Art. 16. — Kinds of Property- 

(a) What is included in the term "property?" 
Ans. All things capable of individual ownership. 

(b) Name two kinds of property. 

Ans. Real property and personal property. 

(c) Define each. 



IO PRACTICAL LAW 

(1) Real Property, or real estate, consists of land and things 
attached to land. 

(2) Personal Property includes all property other than real 
estate. 

Art. 17. — The Right to Use Property 

How may an owner use his own property? 
Ans. As he pleases, with provisions, as follows: 

(1) Provided he violates no law. 

(2) Provided he injures no one else. 

Art. 18.— The Right to Defend Property 

(a) The right to retain and use property, carries with it what other 
right ? 

Ans. The right to defend such property even by force, if necessary. 

(b) How should this right be exercised? 

Ans. With the greatest care, and must not be exercised against an 
officer of the law who is acting in his official capacity. 

(c) How much force may be used when force is allowable ? 

Ans. No more force may be used than the circumstances require. 

(d) When only may property be defended by the use of dangerous 
weapons ? 

Ans. In the defense of property only when the wrongdoer is per- 
petrating or attempting to perpetrate forcible felony. 

(e) Of what crime will one be held guilty should he kill a wrong- 
doer when no forcible felony is perpetrated or attempted ? 

Ans. Manslaughter. 

(f) What of an owner's right to retake property wrongfully with- 
held from him? 

Ans. He may retake his property wherever he may find it, provided 
he can do so without committing a breach of peace. 

Art. 19. — Trover and Replevin- 

(a) Define the terms Trover and Replevin. 

Ans. When one is entitled to possession of property wrongfully 
withheld from him he may recover its value by an action at law called 
"trover", or he may recover the property itself , by a different action at 
law called "replevin". The owner has his choice! 

Art. 20. — Title to Property Lost and Found. 

(a) To whom does lost property belong ? 
Ans. To the owner, and not the finder. 

(b) If, after diligent search, the owner of personal property cannot 
be found, to whom does the property belong ? 

Ans. To the finder. 

(c) Is there any exception to this general rule? 

Ans. Yes. Personal property found concealed in other personal 



QUIZ MANUAL II 

property belongs to the finder, and not to the owner of the personal prop- 
erty in which the hidden property is found. Property found concealed 
in earth belongs to the owner of the real estate, and not to the finder. 

Art. 21. — How one May be Deprived of Property. 

In how many and what ways may a person be deprived of his 
personal property? 

Ans. In any of five ways, as follows : 

(1) By its destruction- 

(2) By its capture by a public enemy. 

(3) By judicial process. 

(4) By prescription- 

(5) By adverse possession. 

Art. 22. — Destruction of Property. 

(a) How may property be destroyed? 
Ans. (1) By natural causes. 

(2) By accident- 

(3) By the owner's own act- 

(4) By the state. 

(b) By what authority may the state destroy property? 

Ans. The state may, by the exercise of its supervisory authority, 
called "police power," enter upon the premises of a private person and 
destroy, without compensation, such property as has an unlawful ex- 
istence, or is noxious to the public health, public morals, or public safety. 

Art. 23. — Capture by Enemy. 

What can you say on this subject? 

Ans. When property is captured by a public enemy in time of war, 
the owner is without remedy. 

Art. 24. — Seizure Under Process. 

(a) Name some purposes for which property may be seized under 
judicial process. 

Ans. (1) Property may be seized under judicial process and sold to 
satisfy a judgment, or a decree of a court against the owner. 

(2) To satisfy unpaid taxes. 

(3) Upon just compensation being made to the owner, property 
may be taken for public purposes. 

(b) By what name is this last right known? 

Ans. It is known as the "Right of Eminent Domain." 

Art. 25. — Prescription. 

(a) What is meant by the right of prescription? 
Ans. When the owner of land permits another, who is without right, 
to enjoy privileges therein for a long period of time (usually 20 years 



12 PRACTICAL LAW 

or less) the privilege, if unchecked, will ripen into a right known as "The 
Right of Prescription." 

(b) After this right has once been attained can the owner exercise 
any power to secure its use? 

Ans. He cannot. 

(c) Give an examnle 

Ans. The use of a private road across another's land. 

Art. 26. — Adverse Possession. 

(a) What is the meaning of this term ? 

Ans. When one takes possession of another's land and remains 
openly and uninterruptedly in possession of it for the full statutory 
period of time, (usually 20 years or less) this possession ripens into a 
right known as "The Right of Adverse Possession. " 

(b) Illustrate this. 

Ans. The building of a line fence over on a neighbor's land, if un- 
disputed will, after the full statutory period, give the transgressor in- 
disputable right to that land. 



GENERAL EXAMINATION NO. i. 

Including the subjects treated in Articles 1 to 26 inclusive appear- 
ing in Practical Law. Answers to the following questions should be 
neatly written and handed to the teacher. Number each answer to 
correspond with the question. Write your name and the current date 
on each sheet. Mark your paper Examination No. 1. Write only on one 
side of the sheets, and avoid erasures, blots, check marks, or other dis- 
figurements. 

1. Define Practical Law. 

2. What of the necessity of a knowledge of this subject? 

3. Give three main purposes of law. 

4. W T hat of conflicting interests between the few and the many ? 

5. Of what does the common law consist, and when do the courts 
base their opinions upon the common law ? 

6. How are the courts aided and guided in basing opinions upon 
the common law? 

7. When are laws called statutes, and in what does their advantage 
over common law consist? 

8. From whence does this government derive all its powers ? 

9. How, primarily, is this consent given? 

10. Does each state recognize a similar supreme law, and, if so, 
what is it called? 

11. What can you say of the meaning and the importance of the 
subject "The Want of Due^Care?" 

12. Give ten special cautions for safe dealing. 



QUIZ MANUAL 13 

13. Make clear the difference between proximate and remote causes, 
and give an example of each. 

14. Name five points constituting negligence in the writing of 
negotiable instruments, such as notes, drafts, checks, etc. 

15. What may be the consequence if an instrument bearing any of 
these points of negligence should come into the hands of an innocent 
third party for value, some changes having been previously made ? 

16. (a) How many kinds of property? Define each. 

(b) What can you say of a person's right to use his own property ? 

(c) Of his right to defend his own property? 

17. Define: 

(a) Trover. 

(b) Replevin. 

18. Tell what you can regarding the title to property lost. 

19. Name four ways in which property may lawfully be destroyed . 

20. Give an example of each. 



CONTRACTS.— THEIR FORMATION. 

Art. 27. — Importance of Sublect. 

(a) What is a contract? 

Ans. An enforcible agreement. 

(b) Should contracts be in writing? 

Ans. All contracts may be reduced to writing, and some contracts 
must be in writing. 

(c) Are unwritten or oral contracts ever binding ? 

Ans. All contracts not required by law to be written are equally 
binding if made orally. 

(d) What objection may there be then, to oral contracts? 

Ans. The one general objection to oral contracts is their uncertainty. 

(e) What proportion of business is carried on by means of contracts ? 
Ans. Practically all business. 

(f) What, then, does the "Law of Contracts" govern? 

Ans. All commercial dealings from the simplest to the most complex. 
Every time a newsboy sells and delivers a paper, a contract is made and 
executed. 

(g) What may be said of contracts as to their particular importance? 
Ans. Some subjects of the law are chiefly the concern of lawyers, 

but this subject concerns every one. * 

(h) Why is a clear knowledge of contracts of especial value to every 
one? 

Ans. (1) Inability to distinguish between contracts which are 
legally bad and those which are legally good means inability to aot 
promptly in matters of business. 



14 PRACTICAL LAW 

(2) It means want of independence. 

(3) It means lost opportunities. 

(4) It means uncertainty, danger and delay, 
(i) Is the subject difficult? 

Ans. Fortunately, the subject is not difficult. Any attentive, 
studious pupil can readily grasp its governing principles. 

Art. 28.— Meaning of "Enforcible." 

(a) We have said that a contract is an enforcible agreement. What 
is meant by "enforcible?" 

Ans. Legally binding. 

(b) May an agreement be .morally though not legally binding ? 
Ans. It may. A promise to attend a dinner may be morally bind- 
ing, but not legally binding. 

(c) To what do the courts confine themselves regarding contracts ? 
Ans. Necessarily to the adjustment of substantial rights. 

(d) Suppose A. were to make an unwritten agreement to sell B. a 
certain piece of land: Would this promise be enforcible? 

Ans. No. Because a contract for the sale of land, to be enforcible, 
must be in writing. 

(e) In general, then, when may a contract be said to be enforcible ? 
Ans. When it is of such character that a court will require either its 

performance or the payment of damage for its non-performance. 

Art. 29. — Class of Contracts. 

(a) For convenience, contracts are divided into how many classes? 
Ans. Three, as follows : 

(1) Valid contracts. 

(2) Voidable contracts. 

(3) Void contracts. 

(b) Define each class. 

Ans. (1) A valid contract is one which is unqualifiedly enforcible. 

(2) A voidable contract is one which is so defective that one 
or both parties to it may lawfully disregard it. 

(3) A void contract is one which is wholly unenforcible. 

(c) Give an example of a voidable contract. 

Ans. A contract for things not necessaries, made with one who is 
under twenty-one years old, is voidable, for he may perform it or repudiate 
it at will. 

(d) Illustrate a void contract. 

Ans. An agreement to perform an act prohibited by law is void. 

Art. 30. — Forms of Contracts. 

(a) As to form, how many and what kinds of contracts have we? 
Ans. Two kinds of contracts, written and unwritten. 



QUIZ MANUAL IS 

(b) How may written contracts be expressed? 
Ans. In documents, letters or telegrams. 

(c) How may unwritten contracts be expressed? 
Ans. In spoken words, or in acts. 

(d) What do you understand by an "Express Contract?" 
Ans. One written or spoken. 

(e) What is an implied contract? 

Ans. One arising from acts, but not expressed in words. 

Art. 31. — A Simple Contract. 

(a) Write out a brief, simple contract and point out by letters, 
thus, (a, b, c, etc. ,) the essential elements, which render it, in form, an 
enforcible contract. 

Ans. See agreement page 18, and the examination below. 

Art. 32. — Testing a Contract. 

(a) Name in their proper order, five essential elements which must 
appear in every valid contract. 

Ans. (1) An agreement. 

(2) Properly made and expressed. 

(3) Between competent parties. 

(4) Upon a sufficient consideration. 

(5) To do or not to do a certain thing. 

(b) Give six questions which should be asked and answered by one 
to his full satisfaction in passing upon the validity of a contract. 

Ans. (1) Was there an agreement? 

(2) Was the agreement properly made and expressed? 

(3) Was the agreement between competent parties? 

(4) Was the agreement founded upon a sufficient consideration? 

(5) Was the agreement to do or not to do a certain thing ? 

(6) Was the object of the agreement lawful? 



AGREEMENT. 

Art. 33. — When Agreement Occurs. 

(a) When does an agreement occur? 

Ans. When the minds of the contracting parties meet in an identical 
purpose. 

(b) Can there be a contract without an agreement? 

Ans. There can be no valid contract without an agreement. 
Art. 34. — Difference Between Agreement and Contract. 

(a) Which is the broader term, Agreement or Contract? 
Ans. Agreement is the broader term. 

(b) Why? 

Ans. All valid contracts are agreements, but not all agreements are 
valid contracts. 



1 6 PRACTICAL LAW i 

(c) Illustrate the fact. 

Ans. An agreement to do that which is unlawful, impossible, or 
against public policy, is not a valid contract, because the courts will 
not enforce such agreements. 

Art. 35. — How Agreement is Attained. 

(a) How are agreements attained ? 

Ans. Contractual agreements always result from an offer on one 
side, and an acceptance of the offer on the other. 

(b) How may both offer and acceptance be made ? 
Ans. By words or by acts. 

(c) Will a valid agreement of itself establish a contract? 

Ans. Not necessarily. It must be remembered that agreement 
is but one of the several elements of a contract. 

Art. 36.— Offer. 

(a) How many kinds of offers? 
Ans. There are two kinds of offers: 

(1) An offer to receive an offer. 

(2) An offer to receive an acceptance. 

(b) Does acceptance of an offer to receive an offer give rise to an 
agreement ? 

(Ans. It does not. 

(c) Illustrate this. 

Ans. (1) If A. were to write to B. saying : I have some prime butter 
which I am selling at 20 cents per pound. Would you like some? 
B. could not bind A to deliver him butter by sending A. an order, there- 
fore, B's order amounts to a mere offer to buy; not an acceptance and is 
not binding until accepted by A. 

(2) If A. , in the first example given above, had written to B. 
saying : "I will ship you 1000 pounds prime butter at 20 cents per pound, 
delivered," then B. 's acceptance would have bound A. In this second 
illustration A. 's offer was an offer for acceptance, and B. 's prompt ac- 
ceptance would have completed an agreement. 

Art. 37. — Acceptance. 

(a) What must be true of an acceptance, to be effectual? 
Ans. It must be co-extensive with the offer. 

(b) What can you say of qualified or conditional acceptance? 
Ans. It is merely a new offer, and must be itself accepted before 

an agreement will result. 

(c) How does a time limit effect an offer ? 

Ans. If an offer fixes a time within which it is to be accepted, ac- 
ceptance cannot be made after the time limit. 

(d) What is the case if no time limit is fixed in the offer ? 

Ans. If an offer fixes no time within which it is to be accepted, the 



QUIZ MANUAL I 7 

offer will be held to continue a reasonable time, and, if accepted in a 
reasonable time, will be binding. 

(e) What will be the case if an offer is made to be accepted in a 
certain time and manner? 

Ans. (1) The acceptance, to be effectual, must be made within the 
time named. 

(2) If an offer is made to be accepted in a certain manner, as, 
for example, by mail, it will be ineffectual. 

(f) Will a provision in an offer that silence will be construed as 
an acceptance, make it legally so ? 

Ans. No. The offerer can impose no such obligation. 

(g) Does an unaccepted offer impose any duty upon the offeree? 
Ans. None whatever. 

Art. 38. — Revocation. 

When may an offer be withdrawn or revoked? 

Ans. At any time before acceptance, unless the offerer has, in his 
offer, fixed a definite time within which to accept, in which case, the offer 
may be revoked at any time after the stated time. 

Art. 39. — Cancellation of Orders. 

• 

(a) What is said to be not an unusual occurrence regarding sales 
by an experienced traveling sales agent ? 

Ans. It is not an unusual occurrence for an experienced traveling 
salesman, by the use of his trained powers of persuasion, to induce persons 
to give orders for articles which, upon sober afterthought, are found 
undesirable or unnecessary. 

(b) In such cases, what remeds*- is sometimes open to the purchaser? 
Ans. If order is taken subject to approval of the "House" Principal, 

as is generally the case, the deluded purchaser may countermand the 
order immediately by telephone, by telegraph, or by any other means 
that will bring his revocation of the order to the attention of the "House" 
before the latter has had time to make acceptance. 

(c) What, usually, is the authority of a traveling sales agent ? 
Ans. Usually, merely to make an offer to receive an offer, and not 

to make an offer to receive an acceptance. 

(d) When is this the case? 

Ans. This is always the case when the '"House" reserves the right 
to accept or reject all orders that the agent procures. This is true 
even though the order expressly provides that "it shall not be subject 
to countermand." 

Art. 40.— Offer, Acceptance, and Revocation by Mail and Telegraph. 

(a) How long does an offer made by mail, hold open? 
Ans. Until the letter is received, and for a reasonable time thereafter, 
unless sooner revoked. 



I 8 PRACTICAL LAW 

(b) How, then, might an offer by mail be revoked? 

Ans. By a telegram, or even by a subsequent letter, provided the 
revocation reached the offeree before acceptance of the offer. 

(c) Suppose the revocation reached the offeree after he had accepted 
the offer, what would be the effect? 

Ans. It would be too late. The offerer would be held to his offer. 

(d) When does the acceptance by mail become operative? 
Ans. When the letter is mailed. 

(e) When does the revocation by mail become operative ? 
Ans. When the letter is received, and not before. 

(f) From the foregoing facts, how do you think is the safest way 
to make revocation? 

Ans. Always by telegram, if possible. 

(g) What would be the effect of a letter of acceptance, if never 
received ? 

Ans. A letter of acceptance would be binding, though never received, 
providing the acceptor could prove that the acceptance was mailed. 
(h) Will this last rule apply to acceptance by telegram? 
Ans. It will, equally well. 



MAKING AND EXPRESSING THE AGREEMENT. 

Art. 41. — Two Dangers. 

Is it possible that the minds of two or more parties may have met 
upon an identical purpose, and an agreement be reached, and yet a valid 
contract fail to arise? 

Ans. The above is possible because: 

(1) The agreement may have been made at an improper 
time. 

(2) It may have been improperly expressed. 

Art. 42. — Improper Time. 

(a) What is provided by the statutes of most states regarding con- 
tracts made on Sunday? 

Ans. By statute, in most states, contracts made on Sunday 
are void. 

(b) If A. sells his horse to B. on Sunday, on credit, will the courts 
aid A. to collect the purchase price? 

Ans. No. In many states the courts will not aid either party under 
an unlawful Sunday contract. 

Art. 43, — Contracts Improperly Expressed. 

(a) If a contract is oral when the law requires it to be in writing, 
wha«t may be said of it? 

Ans. It is either voidable or void. 



QUIZ MANUAL I 9 

(b) Under what provision may all contracts be made orally? 
Ans. Unless some statute provides otherwise. 

(c) For what purpose do all states have statutes requiring certain 
important contracts to be in writing? 

Ans. The purpose of these statutes is to require the preservation of 
accurate proof of what was actually agreed upon. 

(d) Why is this necessary ? 

Ans. (1) Because human memory is fallible. 

(2) Because it is often biased by selfish interests. 

(e) When and how did this law have its source? 

Ans. Several centuries ago, during the reign of King Charles of 
England, it was observed that verbal contracts were a source of many 
frauds and perjuries; accordingly, during his reign, a statute was passed 
in England, entitled "An Act for the Prevention of Frauds and Perjuries. " 
This statute made several classes of contracts void unless preserved in 
writing. Nearly every state in the Union has adopted a Statute of Frauds, 
modeled, to some extent, upon this ancient act. 

(f) Name five classes of contracts which, under the Statute of Frauds 
of most states, are required to be in writing. 

Ans. (1) Contracts which cannot be performed within one year. 

(2) Contracts to pay the debt of another. 

(3) Contracts made in consideration of marriage, except 
mutual promises to marry. 

(4) Contracts for the sale of any interest in land. 

(5) Contracts for the sale of personal property at a price 
exceeding $50.00. 

Art. 44. — Contracts Which Cannot be Performed Within One Year. 

(a) How must contracts which cannot, by any possibility, be per- 
formed within one year, be made? 

Ans. Such contracts must be in writing. 

(b) Give an example of such a contract. 

Ans. A contract to purchase the output of a factory for three years 
would be void if merely verbal. 

(c) Why? 

Ans. Because it is absolutely impossible to carry out this contract 
in one year. 

(d) Would a contract to support another during life be unlawful 
if made verbally? 

Ans. No, it would be valid. 

(e) Why? 

Ans. Because the death of any person may occur within a year. 

Art. 45. — Contracts to Pay the Debt of Another. 

(a) What can you say of verbal contracts to pay the debt of another ? 
Ans. Such a verbal contract is void. 



20 PRACTICAL LAW 

(b) Would a verbal contract of a widow to pay the debt of her 
deceased husband be valid? 

Ans. No, to be enforcible, it must be in writing. 

(c) A. met B. and said to him, "Let C. have goods to the amount of 
$50. 00, and if he does not pay for them, I will. " Was this a valid contract? 

Ans. No, to be enforcible, this statement of A. 's would have to 
be in writing. 

(d) Suppose A. had said, "Let C. have the goods and charge them 
to my account." Would this need to be in writing? 

Ans. No. A. would have been bound whether the contract was oral 
or written, because it was his debt. 

Art. 46. — Contracts Made in Consideration of Marriage. 

(a) Were A. to say to B. "Will you marry me?" and were B. to reply 
"I will:" Would this constitute a contract? 

Ans. It would. 

(b) Would it be valid without being in writing ? 
Ans. Yes, because it is a mutual promise to marry. 

(c) Were A. to say to B. , "If you will marry me, I will give you 
$1000.00," and B. were to reply, "I accept your offer," and they should 
become married, would this constitute a contract? 

Ans. Yes. 

(d) Could B. compel A. to pay the $1000.00? 

Ans. No, not unless the promise to pay money had been made in 
writing. 

Art. 47. — Contracts for the Sale of any Interest in Land. 

(a) Can one verbally make a valid agreement to sell land or an 
interest in land? 

Ans. He cannot. 

(b) Supposing, however, that part of the purchase price is paid, 
would the verbal contract then be valid? 

Ans. No, it would still be void. The purchase price, or any part 
of it may be recovered, but nothing more can be done. 

Art. 48. — Standing Timber. 

Is a verbal contract for the purchase of standing timber valid ? 
Ans. No, because standing timber is an interest in land; hence, such 
a contract must be in writing to hold. 

Art. 49. — Contracts for the Sale of Personal Property. 

(a) Must contracts for the sale of personal property be in writing? 
Ans. Beyond a certain valuation, yes; up to that valuation, no. 

(b) How must this valuation limitation be ascertained? 
Ans. By reference to the statutes of the various states. 



QUIZ MANUAL 21 

(c) By the statutes of a majority of the states verbal contracts for 
the sale of personal property are valid up to what amount? 

Ans. Up to $50.00. 

(d) Can you mention some extreme limitations both ways ? 

Ans. In Delaware it is $25, while in Louisiana it is $500.00. (See 
Table A. , Appendix. ) 

Art. 50. — Contracts for Services. 

(a) Are services property? 

Ans. For certain purposes, services are property. 

(b) Must contracts for services exceeding the statutory limitation 
on personal property be in writing to be valid ? 

Ans. Yes. 

(c) To what, then, does the statute of limitation apply? 
Ans. To property only, not to services. 

(d) Illustrate. 

Ans. Turner & Mason, Hiring artist to produce portrait for $150.00. 
Services, not property, paid for. 

Art. 51. — Payment and Delivery. 

(a) Are there any conditions under which contracts for the sale of 
personal property need not be in writing? 

Ans. (1) Yes, if part of the purchase price is paid, the payment 
will bind the bargain, even though oral. 

(2) In like manner, delivery and acceptance of a part of the 
property bought will bind the bargain, though it be verbal. 

(b) Illustrate. 

Ans. Gilbert v. Lichtenberg, Selling car-load of onions and deliver- 
ing. 

Art. 52. — Putting the Contract Into Writing. 

(a) How about the form required for written contracts ? 

Ans. The Statute of Frauds in most states merely requires that 
"Some memorandum of the contract shall be made in writing, signed by 
the party to be charged " No special form is necessary. 

(b) For whose- protection is this law intended ? 
Ans. All who transact business. 

(c) Why need of such protection? 

Ans. Many who transact business are unskilled in drafting legal 
documents, therefore the statute asks nothing more formal than a simple 
record which any intelligent person should be able to prepare. 

(d) What may such memorandum consist of? 

Ans. The memorandum may consist of signed orders, or of letters, 
or of telegrams, or of all or any of these. 

(e) What one thing, however, is demanded in any one of these 
forms ? 



22 PRACTICAL LAW 

Ans. The writing or writings embodying the contract must set forth 
the essential terms of the agreement so that the intent of the parties 
may be fully gathered therefrom. 

(f) May the memorandum be supplemented by verbal explanations? 

Ans. It cannot. 

Art. 53. — Contents of Memorandum. 

Name six points which, while not always necessary, it is at least 
safest that the memorandum should show. 
Ans. (1) Date of making. 

(2) Date of performance. 

(3) Names of both parties. 

(4) Accurate description of property sold or thing to be done. 

(5) Consideration. 

(6) Signatures of both parties affixed by themselves or by 
their authorized agents. 

Art. 54. — Signing the Memorandum. 

(a) By whom must the memorandum be signed? 

Ans. The Statute of Frauds requires the memorandum in writing 
to be signed by the party to be charged. 

(b) In case but one party is charged is it necessary that both parties 
sign? 

Ans. It is not. 

(c) In this case, against whom is the memorandum binding? 
Ans. The agreement will be enforcible against the party who 

■signs, and not against the one who does not sign. 

(d) From this, what is evident? 

Ans. It is evident that each party should require a complete and 
valid memorandum in some form, signed by the opposite party. 

(e) What should be required when an important verbal order is 
taken ? 

Ans. Its written confirmation should be required. 

(f) Need anything of this kind be done when an important verbal 
contract is given? 

Ans. Yes, its written acceptance should be obtained. 

Art. 55. — Signing by Agent. 

(a) How may such memorandum be signed ? 
Ans. By the parties in person, or by an agent. 

(b) In case signing is done by an agent, how should the agent sign? 
Ans. Suppose Mr. F. B. Bellis to be the principal, and Mr Ross 

C. Childs his agent, in a certain agreement with me, he should sign the 
agreement thus: F. B. Bellis, 

by Ross C. Childs, his agent. 



QUIZ MANUAL 23 

(c) By the statutes of most states, what authority must an agent 
have to enable him lawfully to execute contracts relating to land ? 

Ans. In most states written authority is required. 

(d) For what is verbal authority usually sufficient ? 

Ans. To enable an agent to execute all contracts other than those 
relating to land. 

COMPETENCY OF PARTIES. 

Art. 56. — Incompetent Parties. 

Name four classes of persons, by whom contracts made are usually 
void or voidable. 

Ans. (1) Infants. 

(2) Lunatics and drunken persons. 

(3) Persons under duress. 

(4) Married women. 

Art. 57. — Infant§. 

(a) What is an infant, in the eyes of the law ? 

Ans. Legally considered, an infant is a person under the age of 
twenty-one years. 

(b) What is said of the legality of contracts made by infants ? 
Ans. Contracts made by infants (except for necessaries) are voidable 

at the option of the infant. 

(c) What does the law presume regarding infants? 

Ans. That one who has not reached the age of majority, is too in- 
experienced to be able to deal safely. 

(d) What, therefore, does the law say, in effect? 

Ans. "Those who deal with an infant must do so at their own peril. " 

(e) If the infant is satisfied with the bargain what will be the case ? 
Ans. If the infant desires to enforce the contract, he may. 

(f) If the infant is dissatisfied? 

Ans. He may repudiate the contract, and the courts must sustain 
him in so doing. 

(g) Would the last above principle hold true if the agreement was 
known to be perfectly fair and clearly beneficial to the infants interests ? 

Ans. The principle still holds. The infant could not be held, un- 
less the contract were for the actual necessities of life. 

Art. 58. — Necessaries. 

(a) To what extent may an infant bind himself. 

Ans. An infant may bind himself upon a contract for necessaries, 
to the same extent as though he were of age. 

(b) Why is this so? 

Ans. Were this not so, a friendless infant might suffer, or even 
perish, for want of ability to contract for food, clothing and shelter. 



24 PRACTICAL LAW 

Art. 59. — Disaffirmance. 

(a) When a person attains the age of twenty-one years, is he 
bound by the contracts he has made during infancy? 

Ans. The courts of some states say, "Yes, he is bound by his con- 
tracts made during infancy, unless, upon attaining majority he disaffirms 
them within a reasonable time." The courts of other states say, "No, 
he is not bound by his contracts during infancy, unless upon attaining 
his majority, he ratifies them." 

(b) What becomes necessary because of this conflict of opinions? 
Ans. To refer to the law as it exists in one's own state. 

Art. 60. — Return of Property. 

(a) What must one do who seeks to disaffirm a contract on the 
ground that he was an infant when he made it? 

Ans. He must return so much of the consideration received by him 
as remained in his hands upon attainment of his majority. 

(b) What can he not do ? 

Ans. He cannot both keep the property and disaffirm the contract. 

(c) What, then, does retention of the property amount to ? 
Ans. A ratification of the contract. 

(d) What is the case after attaining majority, in case an infant, 
while such, disposes of property bought? 

Ans. He is not obliged to return either the property or its value. 

Art. 61.— Fraud of Infant. 

(a) What will be the case if an infant represents that he is of full 
age, and obtains contractual benefits thereby, and afterwards avoids 
the contract on the ground of infancy? 

Ans. He may be held liable for his fraud which is known as Fraud 
of Infancy. 

(b) Illustrate. 

Ans. Burley & Russell 10 N. H. 184, An infant, representing limit 
of age, gave note for goods, not necessaries, and afterward tried to avoid 
payment of note on ground of infancy. Infant was sued, and damages 
received. 

Art. 62. — Lunatics and Drunken Persons. 

(a) How is drunkenness regarded by law? 
Ans. As temporary lunacy. 

(b) How do intoxicated persons and lunatics compare as to their 
ability to contract? 

Ans. They are under like contractual disability. 

(c) What is the general rule regarding the contracts of either drunk- 
en persons or lunatics? 

Ans. The general rule is that the contract of either is voidable at his 
option, provided that, at the time of the transaction he was incapable 



QUIZ MANUAL 25 

of understanding the meaning and effect of his act, and provided that 
his condition was known to the person who dealt with him. 

(d) If the last named conditions were not true, if the partially in- 
toxicated person realized what he was doing, or the person he was deal- 
ing with did not know his condition, then what? 

Ans. The contract will be valid. 

Art. 63.— Bad Faith. 

(a) When a contract is made with a weak-minded person, a lunatic, 
or a drunken person, under circumstances showing bad faith on the part 
of the other person, what is usually done? 

Ans. The contract will generally be set aside? 

(b) Will contracts made with persons whose mental powers have 
been impaired by sickness or old age come under the above ruling ? 

Ans. Yes, if the circumstances indicate any degree of bad faith. 
Such contracts are frequently set aside by the courts. 

(c) Illustrate a case under "Bad Faith." 

Ans. If A. were to induce B. to become intoxicated, and were then 
to make a contract with B. to B. 's great disadvantage, the contract 
would be voidable at B. 's option. 

Art. 64. — Necessaries. 

(a) Can there be any contracts made with lunatics or drunken 
persons which are valid? 

Ans. Yes, contracts for necessaries supplied them in good faith 
are valid. 

(c) What constitutes some of the necessaries? 

Ans. Money, board, lodging, food, medicine and education. 

(d) How about things for ornament or pleasure? 

Ans. Those things which are merely for ornament or pleasure are 
c necessaries. 

(e) If it can be shown that the thing furnished was useful and was 
in the nature of a necessary, will not this be sufficient? 

Ans. No, the contract will not be sustained unless the thing furn- 
ished was, in point of fact, necessary to the infant at the time it was 
supplied. 

(f) How about supplying the necessaries to an infant who has parents 
or a guardian? 

Ans. In such a contract, the infant will not be held bound. 

Art. 65. — Lunatics Under Guardianship. 

What can you say regarding the validity of contracts of a lunatic 
made while under guardianship? 

Ans. Except for necessaries, they are void. 



26 PRACTICAL LAW 

Art. 68. — Duress. 

(a) What is meant by the term, "Duress?" 

Ans. Duress is compulsion by acts or threats giving rise to fear 
of serious injury. 

(b) Are contracts valid when made under duress ? 

Ans. They are voidable at the option of the party injured. 

(c) Can there be a contract without an agreement? 
Ans. No, there can not be. 

(d) When does an agreement occur? 

Ans. When the minds of the contracting parties meet upon an 
identical purpose. 

(e) Can there be such a meeting of minds when one of the parties 
is deprived of the free use of his will by great fear of imprisonment or 
bodily injury? 

Ans. There certainly cannot. 

(f ) To what conclusion, then, does this line of reasoning bring us ? 
Ans. That no contract under duress can be valid. 

Art. 67. — Contracts of Married Women. 

(a) Under the common law can a married woman make contracts? 
Ans. No. 

(b) What, then, is the nature of her right to make contracts? 
Ans. It is a statutory right. 

(c) Has an unmarried woman the right to make contracts? 

Ans. An unmarried woman possesses the same contractual powers 
as a man. 

(d) What is the case when the husband of a married woman dies ? 
Ans. Her power to make contracts is thereby immediately revived. 

(e) Would the same be true if the marriage relation was terminated 
in any other way? 

Ans. The same would be true. 

(f) What provision is made by the statutes of nearly all the states 
regarding a married woman's right to conduct business in her own name? 

Ans. A married woman may conduct any business in her own name 
and may make binding contracts in relation thereto. 

(g) How about a married woman's right to become surety for an- 
other ? 

Ans. Many of the statutes deny her this right or the right to bind 
herself by any contract not relating to her separate and individual prop- 
erty. 

Art. 68. — Necessaries. 

(a) May a married woman bind her husband's credit? 
Ans. Yes, for necessaries. 

(b) By what reason is this ? 

Ans. By reason of the husband's legal obligation to support his wife. 



QUIZ MANUAL 27 

(c) In ease the husband can show that the wife is already reasonably 
provided, can she then bind his credit further? 
Ans. She cannot. 



CONSIDERATION. 

Art. 69. — The Meaning of Consideration. 

(a) Define Consideration. 

Ans. The thing given by each party to the other as the inducement 
for the contract, is called Consideration. 

(b) Illustrate. 

Ans. A. bought a horse from B. for S300.00. The consideration 
moving to A. was the horse. The consideration moving to B. was the 
$300. 00. 

Art. 70. — Absence of Consideration. 

(a) What can you say of a contract to give something for nothing ? 
Ans. Such a contract is void. 

(b) What, then, is the foundation of a contract? 

Ans. The foundation of a contract is the consideration. Without 
; t, the contract must fall. 

Art. 71. — Good Consideration. 

Name four things held to be good considerations. 
Ans. (1) Money and things of value. 

(2) Mutual promises. 

(3) Acts and forbearances. 

(4) Natural love and affection. 

Art. 72. — Money and Things of Value. 

(a) What is the commonest form of consideration? 
Ans. The exchange of value for value. 

(b) Must the values be commensurate? 
Ans. The values need not be commensurate. 

(c) Will the courts inquire into the sufficiency of the values in case 
of bad faith? 

Ans. No, in case of bad faith, the courts will not inquire into the 
adequacy of the consideration, but will leave the parties where they have 
placed themselves by their own bargain. 

Art. 73. — Mutual Promises. 

What class of consideration are mutual promises considered to be? 
Ans. Mutual promises creating reciprocal obligations form a good 
consideration. 



28 PRACTICAL LAW 

Art. 74. — Acts and Forbearances. 

(a) Will acts and forbearances form a consideration ? 
Ans. They will, and do. 

(b) What class of consideration do they constitute? 
Ans. An act or a forbearance is a good consideration. 

Art. 75. — Natural Love and Affection. 

(a) Name three classes of natural love and affection which will be 
considered good consideration 

Ans. (1) Blood relationship. 

(2) Natural love and affection. 

(3) Natural duty. 

(b) Will a deed conveying real estate from parent to child in con- 
sideration of love and affection hold good? 

Ans. Such conveyances are valid. 

Art. 76. — Valuable Consideration. 

(a) When is a consideration said to be "valuable?" 

Ans. When it consists of money or of something convertible into 
money. 

(b) Does the law name anything else as a valuable consideration? 
Ans. Yes, marriage is also a valuable consideration. 

(c) As between the parties to a transaction, what consideration is 
sufficient ? 

Ans. A good consideration is sufficient. 

(d) What class of consideration is necessary to support the tran- 
saction as against the adverse interests of creditors? 

Ans. The consideration must be both good and valuable. 



CERTAINTY AND LEGALITY OF OBJECT. 

Art. 77. — Certainty. 

(a) What must be true of its essential provisions, to render a con- 
tract enforcible? 

Ans. It must be certain in its essential provisions. 

(b) May the courts make agreements for the parties ? 
Ans. Courts cannot make agreements for the parties. 

(c) May the courts render certain that which the parties have left 
in doubt? 

Ans. No, they cannot. 

Art. 78. — Illegal Contracts. 

Name two classes of void contracts. 
Ans. (1) Contracts in violation of law. 

(2) Contracts contrary to public policy. 



QUIZ MANUAL 20, 

Art. 79. — Contracts in Violation of Law. 

(a) For what do courts exist? 

Ans. To enforce the law and not to aid in its violation. 

(b) What naturally follows ? 

Ans. It follows that when the object of a contract is unlawful, 
enforcement of the contract is impossible. The contract is therefore 
void. 

Art. 80. — Contracts Contrary to Public Policy. 

(a) What does the law seek to secure? 

Vns. The greatest good to the greatest number. 

(b) What naturally follows ? 

Ans. The interests of the few must yield to the rights of the many. 

(c) In what way will the courts not assist a private individual? 
Ans. The courts will not assist a private individual to work a public 

injury. 

(d) What follows this principle ? 

Ans. It follows that a contract contravening public welfare is void. 

Art. 81. — Illegal Contracts. 

(a) Name seven classes of contracts held void by the statutes of most 
states. 

Ans. (1) Contracts in restraint of trade. 

(2) Contracts for the purpose of stifling competition. 

(3) Contracts to influence public officials. 

(4) Gambling contracts. 

(5) Marriage brokerage contracts. 

(6) Usurious contracts. 

(7) Contracts for immoral purposes. 

Art. 82. — Contracts in Restraint of Trade. 

(a) Is restriction of trade in any degree ever valid? 

Ans. A restriction of trade which is not sufficiently sweeping to 
injure public interest is valid. 

(b) Give an example of such a case. 

Ans. When one sells out the good will of a business, it is lawful for 
him to agree to refrain from re-entering business in competition with the 
purchaser, to the detriment of the good will sold. 

(c) When, then, will contracts in restraint of trade be void? 
Ans. (1) When a contract restrains trade generally; 

(2) Or, in an unreasonably large territory; 

(3) Or, for an unwarrantable length of time; it will be held to 
be contrary to public policy, and, therefore, void. 

Art. 83. — Contracts Stifling Competition. 
Name some conditions which stifle competition and which would be 
declared void by the courts. 



30 PRACTICAL LAW 

Ans. (1) Agreements made for throttling competition. 

(2) Agreements limiting production. 

(3) Agreements increasing prices. 

Art. 84. — Contracts to Influence Public Officials. 

Name three kinds of contracts declared under this head to be void. 
Ans. (1) Contracts to render lobbying service. 

(2) Contracts to influence public officials by indirect or under- 
handed means. 

(3) Contracts for a fee contingent upon certain legislation 
being enacted. 

Art. 85. — Gambling Contracts. 

(a) What is a wager? 

Ans. An agreement to pay upon the happening of an uncertain 
event. 

(b) What is said of the morality of wagering? 
Ans. Wagers are in violation of sound morals. 

(c) What, then, can you say of wagering or gambling contracts? 
Ans. Wagering or gambling contracts are held void by nearly every 

state in the union. 

(d) When may one who has deposited money with a stake-holder 
demand to have his money returned? 

Ans. At any time before it has been paid to the winner. 

(e) May this be done either before or after the bet has been decided? 
Ans. It may. 

(f) What will be the result if the stake-holder refuses to give back 
the money on demand ? 

Ans. The stake-holder becomes personally liable for it to the de- 
positor. 

Art. 86. — Marriage Brokerage. 

What can you say of a contract to procure a wife, or a husband, 
for another? 

Ans. Such a contract is contrary to public policy and to sound 
morals, and is, therefore, void. 

Art. 87. — Usurious Contracts. 

(a) How are interest rates regulated by the statutes of most states ? 
Ans. The maximum rate of interest that may be charged, also the 

legal rate of interest, are fixed by statute in most of the states of the 
Union. 

(b) What is meant by usury? 

Ans. When a contract, directly or indirectly, requires payment of 
a return to the lender or his agent, exceeding the maximum rate allowed 
by law, it is said to be usurious. 



QUIZ MANUAL 31 

(c) What decides the penalty for usury? 

Ans. The statutes of the state in which the usury is committed. 

(d) What is it in our state? (See appendix, Table C.) 

Art. 88. — Contracts for Immoral Purposes. 

What will the courts do toward enforcing contracts for immoral 
purposes ? 

Ans. Nothing. 



CONSTRUCTION OF CONTRACTS. 

Art. 89.— Words. 

(a) What is the meaning of the term Construction as used in con- 
nection with contracts? 

Ans. The act of ascertaining the intent (finding out the meaning) 
of the parties from the worded expressions they have.used, is called con- 
struction. 

(b) In construing a contract, what meaning is to be given to com- 
mon and what to technical words? 

Ans. Common words are to be given their plain , obvious and ordinary 
meaning. Technical words and trade terms are to be given their special 
significance, unless a different intent is evident from the instrument 
itself. 

(c) In the construction of contracts, against whom are words most 
strongly construed? 

Ans. Against the party using them. 

(d) Why should this be true? 

Ans. Because it is presumed that he has used language as favorable 
as possible to himself. 

Art. 90. — Clerical Errors. 

What is the policy of law toward clerical errors? 

Ans. The law supplies omissions caused by errors that are plainly 
clerical. 

91. — Double Construction. 

When a contract is capable of two constructions, which one will be 
chosen ? 

Ans. The one which will make it operative will be chosen in pref- 
erence to the one which will make it inoperative. 

Art. 92. — Satisfaction. 

When it is contracted that a certain thing shall be to the satisfaction 
of another, as, for example, that certain machinery shall work to the 
satisfaction of the purchaser, who is to be the judge ? 

Ans. The person whose opinion is to be thus consulted is the sole 
judge of whether or not he is satisfied. If dissatisfied he may cancel the 
contract. 



32 PRACTICAL LAW 

Art. 93. — Negative Contracts. 

What power have the courts regarding a contract which provides 
that one of the parties to it shall not do a certain thing? 

Ans. The breach of such a contract may be enjoined by the courts. 

Art. 94. — Reasonable Time. 

When an act is promised to be done, and no time of performance is 
set, what will the law say about it? 

Ans. That the act is to be done within a reasonable time. 

Art. 95. — Contracts Partly Written and Partly Printed. 

When a part of a contract is written in words and part is a printed 
form, and the written words are in conflict with the printed portion, 
what will control? 

Ans. In such case, the written words will control. 

Art. 96. — Writing Not Varied by Parol. 

When a contract has been reduced to writing and executed by the 
parties, what effect has this upon any previous verbal understanding ? 

Ans. All preliminary understandings and agreements are merged 
in the written agreement. To all intents and purposes, the preliminary 
verbal agreements cease to exist. 

Art. 97.— The Law of Place. 

(a) What is the general rule as to when a contract is valid ? 

Ans. As a general rule, a contract valid where made, is valid every- 
where, and a contract invalid where made, is invalid everywhere. 

(b) What is the case when a contract is made in one state or country 
to be performed in another? 

Ans. In such case the law of the place of performance governs the 
contract, unless the parties have agreed otherwise. 

(c) What is the case when the contract is both made and to be per- 
formed in one and the same state? 

Ans. The law of the place where the contract is made governs. 



TERHINATION OF CONTRACTS. 

Art. 98. — How Contracts are Terminated. 

Give six ways in which contracts are commonly terminated. 
Ans. (1) Performance. 

(2) Substitution. 

(3) Cancellation. 

(4) Rescission. 

(5) Breach. 

(6) Limitation. 



QUIZ MANUAL 33 

Art. 99. — Performance. 

When is a contract terminated by performance? 
Ans. When both parties have performed all that they have agreed 
upon, the contract is at an end. 

Art. 100. — Impossibility of Performance. 

(a) What will be the case if performance becomes impossible by 
reason of the destruction of the subject matter of the contract, or by 
reason of the death of one or more of the parties ? 

Ans. The performance will be excused. 

(b) Is there ever a case when performance is impossible, yet not 
excused ? 

Ans. Yes. In case the impossibility arose from a cause which the 
parties should have provided against in their contract, the performance 
will not be excused. 

Art. 101. — Substitution. 

(a) How may a new contract be made to wholly take the place of 
the original agreement? 

Ans. By mutual consent of the parties thereto. 

(b) When this is done, what becomes of the old contract? 
Ans. It is terminated, and the new one is in force. 

(c) Is a new consideration required to support the new contract ? 
Ans. It is not. 

Art. 102. — Cancellation. 

(a) What else may be done by mutual consent? 
Ans. The parties may cancel the contract. 

(b) How may this always be done? 
Ans. Always in writing. 

(c) May a written agreement ever be changed by an oral one ? 
Ans. Yes, a written contract may be changed or cancelled by an 

oral agreement to that effect, afterwards, except when the contract is 
of a class required by the law to be in writing. 

Art. 103. — Rescission. 

(a) What is the action termed Rescission? 
Ans. The act of disaffirmance is called rescission. 

(b) When is a contract subject to rescission? 

Ans. A contract is voidable, hence subject to rescission, when one 
or more parties to it have the right to either treat it as binding, or to 
disaffirm and repudiate it at pleasure. This act of disaffirmance is 
called Rescission. 

(c) Illustrate. 

Ans. (1) The voidable contracts with a minor and an adult may 



34 PRACTICAL LAW 

be either enforced against the adult or repudiated by the infant, as the 
infant chooses. 

(2) Contracts made under duress, and the voidable contracts 
of married women, lunatics, and drunken persons may be rescinded. 

(3) Contracts in which the opposite party has defaulted may 
be rescinded. 

(4) Contracts induced by fraud, false representations, and 
mutual mistake of facts are subject to rescission. 

Art. 104. — Fraud. 

What is fraud as applied to contracts? 

The intentional and successful employment of any cunning deception, 
or artifice used to circumvent or cheat another is fraud. 

Art. 105. — False Representations. 

When is false representation sufficient ground for the rescission of a 
contract ? 

Ans. False representation of a material fact, made with knowledge of 
its falsity, or with reckless abandon as to whether it be true or false 
and which is intended to mislead, is sufficient ground for the rescission of 
a contract. 

Art. 106.— Opinion. 

(a) Will the expression of an opinion afford sufficient ground for 
the rescission of a contract? 

Ans. Where both parties are in an equal position to judge, and 
where each relies upon his own judgment, it will not. 

(b) Suggest an example. 

Ans. Mere trade talk by one who extolled the value of the property 
he had for sale, where both parties are equally able to judge, is not ground 
for rescission, even though untrue. 

Art. 107. — Expert Opinion. 

(a) What is meant by the term Expert Opinion? 

Ans. It is the special and unusual knowledge of a certain subject 
possessed by one who has made a special study of that subject . 

(b) Does the expression of such an opinion ever afford sufficient 
ground for the rescission of a contract? 

Ans. It does, if the expression is false and the other party has not 
a like ability and opportunity to judge the matter. 

Art. 108. — Mistake, 

(a) When will a mistake afford ground for rescission of contract ? 

Ans. When the mistake is on an essential fact and arises from a 
studied suppression of facts by one side, or by a mistake of facts on both 
sides. 



QUIZ MANUAL 35 

(b) May contracts be rescinded on account of a mistake of law ? 
Ans. They cannot. Everyone is presumed to know the law. 

Art. 109. — Mutual Mistake. 

(a) What is understood here by the term Mutual Mistake? 

Ans. When both parties to a contract are in error as to the subject 
matter of the contract, it constitutes a mutual mistake. 

(b) Will such mutual mistake afford ground for rescission ? 
Ans. It will. 

Art. 110. — Breach of Contract. 

(a) What is meant by a Breach of Contract? 
Ans. It is a violation of a binding contract. 

(b) What is the remedy for breach of contract? 

Ans The innocent injured party is entitled to reimbursement 
for the loss occasioned by such violation. 

Art. 111. — Breach of Implied Contract. 

May damages be recovered for breach of implied contract ? 
Ans. Yes, as well as for breach of an express contract. 

Art. 112. — Inducing Persons to Break Contract. 

(a) Can action be maintained for inducing another to break his con- 
tract ? 

Ans. In general, no action can be maintained.. 

(b) In what does the remedy consist? 

Ans. In the injured party bringing suit against the opposite party for 
breach. 

Art. 113. — Limitation. 

(a) Give two ways in which contracts may be ended by limitation. 
Ans. (1) By a limitation contained in the contract itself. 

(2) By limitation of law. 

(b) Illustrate each. 

Ans. (1) If A. were to lease a house from B. for a term of three years, 
the lease contract would terminate by its own limitation at the end of 
that period. 

(2) This occurs when either party to a contract refuses or 
neglects to recognize a liability upon it for a period of time fixed by law. 



DEFENSES AGAINST CONTRACTS 

Art. 111. — Defenses. 

(a) When one is called upon to perform a contract, for how many 
reasons may he refuse compliance? 



36 PRACTICAL LAW 

Ans. There may be one or more of sixteen distinct reasons for non - 
compliance. 

(b) Name them. 

Ans. (1) Want of agreement. 

(2) Want of proper form. 

(3) Want of competent parties. 

(4) Want of consideration. 

(5) Want of certainty. 

(6) Want of legal object. 

(7) Performance. 

(8) Impossibility of performance. 

(9) Substitution. 

(10) Mutual cancellation. 

(11) Rescission. 

(12) Merger. 

(13) Alteration. 

(14) Forgery. 

(15) Bankruptcy. 

(16) The Statute of Limitations. 

Art. 115. — Merger. 

(a) What is meant by Merger? 

Ans. It means the losing of the lesser in the greater. 

(b) Explain this more fully. 

Ans. Conversations, verbal agreements, and even written negotia- 
tions, leading up to a formal written contract are said to be merged in the 
final written agreement. 

(c) If, then, there has been a verbal contract, and afterwards a 
written contract is made intended to cover the same subject, can suit be 
sustained on the verbal contract? 

Ans. No, it is merged in the written contract. 

Art. 116. — Alteration. 

(a) What will be the effect if the obligee changes a contract ? 
Ans. The obligor is thereby released from the contract. 

(b) Would this be true if the change made by the obligee were in 
favor of the obligor? 

Ans. Yes, just the same. 

(c) If the conditions were changed and the obligor made the change 
in the contract, would the same rule hold? 

Ans. Yes, any change by either party to a contract without the 
knowledge and consent of the other party, absolutely annuls the contract. 

(d) How about changes made by consent of both parties to the con- 
tract ? 

Ans. Alteration made by consent of all parties to an agreement, is 
valid and does not impair the contract. 



QUIZ MANUAL 37 

Art. 117. — Forgery. 

(a) Of what does forgery consist? 

Ans. Forgery includes both making and altering instruments 
falsely with intent to deceive. 

(b) What may be forged? 

Ans. Any writing may be forged. 

(e) Is the crime confined to any particular part of the document ? 
Ans. It is not. A material change in any part of the instrument 
constitutes forgery. 

(d) . What then, may be said of all forged instruments ? 
Ans. All are void. 

Art. 118. — Discharge in Bankruptcy. 

What is the effect of a discharge in bankruptcy ? 

Ans. One who has been discharged in bankruptcy is released from 
all debts and contractual obligations embraced in the bankruptcy pro- 
ceedings. 

Art. 119. — Statute of Limitations. 

(a) What is the prime object of the statute of limitations? 

Ans. To avoid the annoyance and injustice arising through suits 
upon state claims. 

(b) When this time has expired, what terms may be applied to the 
contract thus limited? 

Ans. The expired obligation is said to be "barred by limitation," 
or, in popular language, "outlawed." 

(c) How may an action brought upon an outlawed claim be defeated ? 
Ans. By proof that suit has not been commenced within the time 

provided by law. 

(d) What is the period of limitation? 

Ans. It differs in the several states, hence must be determined by 
reference to the statutes of the particular state. 



GENERAL EXAMINATION NO. 2. 

Embracing the subject of Contracts, their Formation, Interpretation, 
and Termination, treated in Articles 27 to 119 inclusive appearing in 
Practical Law. Answers to the following questions should be neatly 
written and handed to the teacher. Number each answer to correspond 
with the question. Write your name and the current date on each sheet. 
Mark your paper Examination No. 2. Write only on one side of the 
sheet, and avoid erasures, blots, check marks, or other disfigurements. 

1. What is a contract? 

2. What does the law of contracts govern? 



38 PRACTICAL LAW 

3. Give three reasons why a clear knowledge of contracts is of 
especial value to everv one. 

4 Give three classes of contracts, as to their legality. 

5. Name two forms of express contracts, and state the chief ad- 
vantage of the one form over the other. 

6. Give six questions in passing upon the validity of a contract. 

7. (a) When does an agreement occur? 

(b" 1 Distinguish between the terms agreement and contract. 

8. Name and define the different kinds of offers. 

9. What must be true of an acceptance to make it effectual? 

10. Explain fully and clearly the difference between the terms 
Revocation and Rescission. 

11. (a) When may an offer be cancelled? 

(b) When may an acceptance be cancelled? 

(c) When does the cancellation of an offer become effective 
if made by mail or telegraph? 

(d) Tell the same of an acceptance revoked by mail or telegraph. 

12. Name five classes of contracts, which, under the "Statute of 
Frauds" of most states, are required to be in writing. 

13. (a) Name six points, which, while not always absolutely neces- 
sary, it is at least safest that memoranda of a contract should show. 

(b) Illustrate how signing should be done by an agent. 

14. (a) Name four classes of parties by whom contracts made are 
usually void or voidable. 

(b) May an infant make a contract which will not be voidable, 
and, if so, under what conditions? 

15. What is known as "Fraud of Infancy?" 

16. How is drunkenness regarded by the law? 

17. Define and give example of each of the following: 

(a) Bad faith. 

(b) Duress. 

(c) Restraint of trade. 

(d) Stifling competition 

(e) Usury. 

(f ) Legal rate. 

(g) Maximum rate 
(h) Construction, 
(i) Satisfaction. 

(j) Parol. 

18. (a) Name four things which will constitute "Good Considera- 
tion." 

(b) Define and illustrate "Valuable Consideration." 

19. Name two classes of void contracts. 

20 Distinguish between technical and common words, and state 
how each are construed in law. 






QUIZ MANUAL 39 

21. Show the distinction between "Common Opinion" and "Expert 
Opinion " 

22. What is a "Negative Contract," and by what means is it enforced ? 

23. Give six ways in which contracts may be terminated. 

24. Give sixteen reasons, for any of which, one may refuse compliance 
with the terms. 

25. Define and explain the purpose of Statute of Limitation. 



PRINCIPAL AND AGENT. 

Art. 120.— The Relation. 

(a) Who is an Agent ? 

Ans. One who acts instead of another, with authority to do so. 

(b) Who is the Principal ? 

Ans. One by whose authority the agent acts. 

Art. 121. — Kinds of Agents. 

(a) How are agents classified as to the scope of their authority? 
Ans. Agents are classified as Special Agents and General Agents. 

(b) Define special agents. 

Ans. A special agent is one whose authority is limited to a single 
transaction, or to transactions of a narrow and limited nature. Thus 
an agent to sell and collect is a special agent. 

(c) What is a General Agent? 

Ans. A general agent is one who has authority to transact all kinds 
of business relating to an enterprise. 

Art. 122. — General Agents. 

In how much may a general agent bind his principal ? 

Ans. A known general agent binds the principal by all transactions 
performed in relation to the business in which he is engaged and within 
the scope of his apparent authority. 

Art. 123. — Special Agents. 

(a) How may a special agent bind his principal? 

Ans. A special agent binds his principal only when he acts within 
the scope of his actual authority. 

• (b) What protection has the public in the matter ? 

Ans. Persons who deal with a special agent must ascertain his 
authority at their own peril. 



40 PRACTICAL LAW 

Art. 124. — Conferment of Authority. 

(a) How may authority be conferred upon an agent? 
Ans. (1) Bywords. 

(2) By acts. 

(3) By failure to act. 

(b) What will be the result if one knows that another is assuming 
to act as his agent, yet makes no objection? 

Ans. He cannot successfully deny the authority of the agent when 
such denial will injure those who have been misled by the supposed 
principal's silence. 

(c) Must authority conferred by words be written? 
Ans. Authority may be conferred verbally or in writing. 

(d) Will verbal authority be sufficient to authorize the agent to 
execute a written contract? 

Ans. It will be. 

(e) Is there any exception to this? 

Ans. Yes, authority to execute a deed must be in writing. 

(f) What can you say of authority to execute an instrument re- 
quired by law to be under seal ? 

Ans. Such authority must itself be under seal. 

(g) By what legal form is authority to an agent conferred ? 
Ans. By the legal form known as a "Power of Attorney. " 

Art. 125. — Ratification. 

(a) What is meant by ratification? 

Ans. Adoption of the act of another either expressly or by receiving 
the benefits of such act, is called ratification. 

(b) Ratification is said to be equivalent to what? 
Ans. Ratification is equivalent to prior command. 

Art. 126.— Authority to Collect. 

(a) What does general authority to collect authorize an agent to 
receive ? 

Ans. Cash only in payment. . 

(b) If one pays an agent in something which that agent has no 
authority to receive, is the debt thereby discharged? 

Ans. It is not. If the principal declines to ratify the act of the 
agent, the debt may be collected again. 

Art. 127.— Duty of Agent. 

(a) What is the highest duty of an agent ? 
Ans. Fidelity to his principal. 

(b) Can an agent act adversely to his principal's interests ? 

Ans. He cannot lawfully act against his principal's rightful interests. 

(c) Give an example of this principle. 



QUIZ MANUAL 4] 

Ans. An agent cannot act as agent for both buyer and seller, ex- 
cept by consent of both parties. 

(d) To this statement there is one apparent exception. What is it ? 
Ans. The case of the middleman, who simply brings the parties 

together and leaves them to make their own bargains. 

(e) May such middleman collect from both parties ? 
Ans. He may, if both have agreed to pay. 

(f) Will this hold true if the agent's employment involves the 
use of discretion? 

Ans. No, he must act for one principal only. 

Art. 128. — Liability of Agent. 

May an agent so exercise his power as to bind himself ? 
Ans. He may, in three ways, as follows: 

(1) When he acts for an undisclosed principal. 

(2) When he expressly pledges his own credit. 

(3) When he does an illegal act. 

Art. 129. — Signature of Agent. 

(a) Will such a signature as "John Rice, Agent," he held to bind 
the principal and the principal only? 

Ans. The word "agent" after the signature is merely discriptive, 
and unless it appears from the body of the instrument that the agent 
intended to bind the principal and not himself, such a signature would, 
in most cases, be held to bind the agent only. 

(b) Does any mere description of himself limit a person's liability? 
Ans. Not at all. 

(c) How should an agent's signature appear, to positively bind the 
principal, and the principal only? 

Ans. The agent should sign in the following form: 

John Smith, 

By Henry Brown, 

his agent. 
Art. 130. — Termination of Agency. 

In how many ways may an agency be terminated? 
Ans. In any one or more of five ways, as follows : 

(1) By limitation. 

(2) By revocation. 

(3) Insanity. 

(4) By bankruptcy. 

(5) By death. 

Art. 131. — Termination by Limitation. 

When is a special agency terminated? 

Ans. (1) When the special thing to be done has been done, the 
agency is at an end. 



42 PRACTICAL LAW 

(2) When the agency is for a fixed time and the time has ex- 
pired, the agency is likewise terminated. 

Art. 132. — Termination by Revocation. 

(a) In general, what power or right has the principal to revoke the 
agent's authority? 

Ans. The principal may revoke the agent's authority at will. 

(b) Is there any exception to this rule? 

Ans. There is an important exception to this rule, viz. , an agency 
coupled with a pecuniary interest on the part of the agent in the subject 
of the agency cannot be revoked without extinguishing the interest. 

Art. 133. — Termination by Insanity. 

When does insanity terminate an agency? 
Ans. When officially determined. 

Art. 134. — Termination by Bankruptcy. 

What effect has the bankruptcy of the principal ? 
Ans. Terminates all pre-existing agencies. 

Art. 135. — Termination by Death. 

What effect does the death of either the principal or the agent, 
necessarily have? 

Ans. Instantly terminates the agency. 

Art. 136. — Disregard of Instructions. 

(a) What is the result when an agent disregards positive instructions ? 
Ans. He will be personally liable to his principal for any loss result- 
ing therefrom. 

(b) What will be the case should profit result from such disregard 
of instructions? 

Ans. Such profit belongs to the principal. 



PARTNERSHIP. 

Art. 137.— The Relation. 

(a) What class of business may be carried on by means of a part- 
nership ? 

Ans. Any lawful business. 



QUIZ MANUAL 43 

(b) When is a partnership said to exist? 

Ans. When two or more persons combine their property, labor, or 
skill in the transaction of business for mutual profit. 

(c) Is the bearing of losses a common incident in connection with 
partnership ? 

Ans. It is, but not essential to the partnership relation. 

(d) Do all the partners always participate in the losses? 

Ans. Not necessarily. The partners may agree among themselves 
that one or more of their numbers shall not participate in loss. 

(e) How will such an agreement effect the partner's liability to 
creditors ? 

Ans. It will not prevent such partners being liable to creditors 
for partnership debts. 

Art. 138. — Classes of Partners. 

(a) How many distinct classes of partners are there ? 
Ans. Partners are of four classes, as follows: 

(1) Actual, (real members). 

(2) Ostensible, (apparent members). 

(3) Nominal, (persons lending their names). 

(4) Dormant or silent, (persons having a concealed interest). 

(b) May a dormant or silent partner he held liable by the public 
for partnership debts? 

Ans. Yes, to the same extent as any other member, if he is dis- 
covered. 

Art. 139. — Creation of Partnership. 

(a) As among themselves, how must the partnership relation arise? 
Ans. From expressed or implied contract. 

(b) As to third parties, (i. e. , "outsiders"), what is the case in this 
regard ? 

Ans. Third parties may often hold an apparent partner to a part- 
nership liability when no partnership was contracted for or intended. 

Art. 140. — Kinds of Partnership. 

(a) How are partnerships classified as to their purposes ? 
Ans. Partnerships are either trading or non-trading. 

(b) How are they readily distinguished? 

Ans. If the business of the partnership is to buy and sell for 
profit, it is a trading partnership. 

(c) Give an example of each. 

Ans. (1) Trading, buying and selling produce. 
(2) Non-trading, farming and raising crops. 

Art. 141. — Trading Partnerships. 

(a) What may be said of each partner in a trading partnership? 



44 PRACTICAL LAW 

Ans. Each partner is the general agent of all the other partners 
in the transaction of firm business. 

(b) May the authority of the partners of a trading partnership be 
limited ? 

Ans. As among themselves, the partners may limit their authority 
by contract, but as to third parties, having no knowledge of such limita- 
tion, the authority of each partner to bind every member of the firm is 
absolute. 

Art. 142. — Firm Bound, Through Funds Misappropriated. 

Is a trading firm bound by the acts of a partner who borrows and 
misappropriates funds? 

Ans. If a partner in a trading firm borrows any money apparently 
for the firm, it is immaterial that he afterwards misappropriates its use. 
1'he firm will be bound by the obligation. 

Art. 143. — Non-Trading Partnerships. 

(a) When can a member of a non-trading partnership bind the firm ? 
Ans. Only when he has expressed or implied authority so to do. 

(b) Explain this more fully. 

Ans. If a member of a law firm, or any other non-trading partner- 
ship, were to offer for discount a note signed in the firm name, the per- 
son taking such note must ascertain, at his own peril, the partner's author- 
ity to sign it. 

(c) What would be the case, should such authority prove not to 
exist ? 

Ans. The partner, or partners, participating in the transaction or 
ratifying it, and no others, can be held liable. 

Art. 144.— Good Faith. 

(a) Can a partner act as the agent of the firm in making a contract 
with himself ? 

Ans. He cannot. 

(b) Cite an example. 

Ans. A partner has no authority to loan himself the firm's money. 

Art. 145. — Suits by Partners. 

(a) May a partner bring suit at law against his co -partners upon 
obligations arising in the course of the firm's business? 

Ans. In general, a partner cannot do so. 

(b) Why is this true? 

Ans. The reason is, that one person cannot be both plaintiff and 
defendant in the same suit. For one to sue a partnership of which he 
is a member would be, in effect, the bringing of a suit against himself. 



QUIZ MANUAL 45 

(c) What, then, is a partner's remedy in case he has been unfairly 
dealt with? 

Ans. His only remedy is to go into a court of equity and ask for an 
accounting. 

Art. 146. — Sharing Profits and Losses. 

(a) In the absence of any agreement to the contrary, how must part- 
ners share the partnership losses and gains? 

Ans. As among themselves, in the absence of an agreement to the 
contrary, partners must share the gains and bear the losses equally and 
without advantage to one partner over another. 

(b) Have the partners a right to agree upon any other basis of divi- 
sion, as they may see fit ? 

Ans. They have, as among themselves, and the agreement will be 
valid. 

(c) How will such an agreement among the partners effect the rights 
of the public in collection from the individual partners of the obligations 
of the firm? 

Ans. These agreements among the partners have no effect whatever 
as to the rights of third parties. Outside parties may still hold any one 
partner for the whole obligation of the firm. 

Art. 147. — Compensation. 

(a) What can you say regarding compensation to partners for 
services rendered the firm? 

Ans. In the absence of an agreement to the contrary, partners are 
not entitled to compensation for such services. 

(b) What will be the case if a partner falls sick ? 

Ans. If a partner falls sick, the other members of the firm must 
carry on the business without increased compensation. Each partner 
is entitled to his share of the profits, and to nothing more. 

(c) In case of the death of a partner, can the other partners exact 
compensation for their services in closing up the firm's affairs ? 

Ans. They cannot. 

Art. 148. — Dissolution. 

(a) In how many ways may a partnership be dissolved ? 
Ans. In any one of four ways, as follows: 

(1) By mutual consent. 

(2) By withdrawal of one of the partners through the sale of 
his interest in the concern. 

(3) By the bankruptcy of one of the partners. 

(4) By the death of a partner. 

(b) When may dissolution be decreed by a court ? 

Ans. (1) When any partner becomes incapacitated by insanity, 
imprisonment, or other causes of more than a temporary nature. 

(2) For fraud on the part of one or more members of the firm. 



46 PRACTICAL LAW 

Art. 149. — Notice of Dissolution. 

(a) When a firm has been dissolved, to whom should notice of dis- 
solution be given ? 

Ans. Due notice should be given to all persons with whom the firm 
has dealings. 

(b) Why should this be closely observed? 

Ans. Because, while the dissolution revokes the agency of each 
member to bind the personal credit of the others, this revocation does not 
operate against third parties who extend credit to the continuing partners 
without knowledge of the dissolution. 



THE EMPLOYMENT OF LABOR. 

Art. 150.— The Relation. 

(a) By what legal terms are the employer of labor and the employee 
known? 

Ans. The employer is known as the Master; the employee is known 
as the Servant. 

(b) From what must this relation result? 
Ans. By contract, either express or implied. 

(c) What can you say of recovering compensation for voluntary 
services ? 

Ans. No compensation can be recovered for voluntary services ren- 
dered under circumstances which fail to show a mutual expectation 
that payment is to be made. 

Art. 151.— Duty of Master. 

What is the master's duty? 

Ans. The master's duty is four-fold, as follows: 

(1) To provide the servant with reasonably safe premises 
and appliances. 

(2) To warn the servant of extraordinary dangers known 
to the master. 

(3) To use reasonable care in selecting safe fellow-servants. 

(4) To pay the servant his wages as per contract. 

Art. 152. — Safe Premises. 

What is the result of the master's failure to provide reasonably safe 
premises ? 

Ans It renders the master liable to the servant for any resulting 
damages. 



QUIZ MANUAL 47 

Art. 153. — Safe Appliances. 

(a) Must the master furnish the safest known appliances? 

Ans. The master is not bound to furnish his servant with the safest 
known appliances, but the appliances furnished must be reasonably safe. 

(b) What will be the result if the appliances furnished by the master 
are not reasonably safe? 

Ans. The master will be liable for the resulting damages. 

Art. 154. — Warning of Extraordinary Danger. 

(a) For what reasons may danger be considered extraordinary? 
Ans. (1) By reason of the nature of the employment. 

(2) Because of the youth or inexperience of the employee. 

(b) What is the master's duty in such cases? 

Ans. To warn his servant. If he fails to do so, he will be liable for 
resulting injuries. 

Art. 155. — Care in Selecting Servants. 

(a) What is the master's duty regarding this subject? 

Ans. The master must exercise reasonable care in furnishing his 
servants with competent fellow-servants. 

(b) What if the master fails to do this? 

Ans. He will be held liable to his servants for injuries resulting 
from the negligently-selected fellow-servants' incompetence. 

Art. 156. — Assumed Risks. 

(a) What risks are the servants bound to assume ? 

Ans. A servant assumes the ordinary risks incident to the employ- 
ment in which he engages. 

(b) Can the servant recover from his master for damages arising 
from ordinary dangers of the employment? 

Ans. He cannot. 

Art. 157. — Negligence of Fellow Servants. 

Must the servant assume any risk of negligence on the part of 
his fellow servants? 

Ans. The servant assumes the risk of negligence on the part of his 
fellow-servants provided the master has selected them with due care. 

Art. 158. — Contributory Negligence. 

(a) What is meant by contributory negligence? 

Ans. Negligence which is, in part at least, the result of the servant's 
own fault. 

(b) Can the master be held liable for injuries received by the servant 
under such circumstances? 

Ans. He cannot. 



4^ PRACTICAL LAW 

(c) What will be the case if the master instructs the servant to go 
into a place of danger, and injury to the servant results ? 

Ans. Generally, the master cannot escape liability if the servant 
obeys and is injured. 

(d) Is there any exception to this? 

Ans. Yes, if the risk was so glaring that an ordinarily prudent 
man would have disobeyed the order, the master could not be held liable. 

Art. 159. — Payment of Servant. 

(a) What is the final duty of the master? 

Ans. It is to pay the servant according to contract. 

(b) What amount can the servant recover in case no amount has been 
agreed upon? 

Ans. The servant will be entitled to recover such an amount as his 
services are reasonably worth. 

(c) When a servant continues to serve after the termination of a 
definite contract what will be his compensation ? 

Ans. The servant will, under this condition, continue at the same 
rate of compensation as originally provided. 

(d) Is a servant entitled to extra compensation for extra services 
rendered in the general line of his employment ? 

Ans. His regular salary will be presumed to cover such extra ser- 
vices, unless there has been a special agreement by the master to pay 
additional compensation. 

(e) What may result from the failure of the master to pay his ser- 
vant at the time and in the manner agreed upon? 

Ans. Such failure amounts to a breach, for which the servant may 
declare the contract terminated. 

(f) What may then be said of the contract? 

Ans. The contract is voidable at the will of the servant, but not 
by the master. 

Art. 160.— Duty of Servant. 

What is the duty of the servant? 

Ans. To serve faithfully and with sobriety, and to obey all the 
reasonable commands of the master. 

Art. 161. — Discharge. 

Name five things for which a servant may be lawfully discharged? 
Ans. (1) For such immorality as diminishes the value of his service. 

(2) For want of reasonable skill. 

(3) For habitual neglect of duty. 

(4) For prolonged sickness, but not for mere temporary illness. 

(5) For insubordination. 



QUIZ MANUAL 49 

Art. 162. — Wrongful Discharge. 

(a) If the master discharges his servant without sufficient cause, 
what are the servant's remedies? 

Ans. The servant has his choice of two remedies, as follows: 

(1) He may treat the contract as rescinded and sue for the 
reasonable value of the services rendered. 

(2) He may treat the contract as still in force and recover 
damage for the breach of it. 

(b) In the latter case, what amount is the servant entitled to re- 
cover ? 

Ans. In case the master shows nothing in mitigation of damages, 
the servant is entitled to recover the whole amount specified in the 
original contract for the full term of the employment. 

(c) What defense may the master have against such a suit as the 
above ? 

Ans. The master, in such case may, if he can, show in mitigation 
of damages that the servant has obtained, or might have obtained by 
reasonable exertion, other employment in the same line of business in 
the same locality. 

(d) What will the master gain if he succeeds in showing this to be 
true? 

Ans. If this is successfully shown, the amount of damages recover- 
able by the servant will be reduced by the amount which the servant has 
received, or might by proper exertion have received, during the period 
of the breach. 



CARRIERS. 
Art. 163. — Classes of Carriers 

(a) How many kinds of Carriers are there? 
Ans. Carriers are of two kinds. 

(b) Name them. 

Ans. Private carriers and common carriers. 

(c) Define each. 

Ans. A private carrier is one who undertakes to carry goods for 
particular customers only, and by special agreement. 

A common carrier is one who undertakes to carry for all persons 
who offer goods and the charges of carriage. 

Art. 164. — Liability of Private Carriers. 

What is the liability of a private carrier? 

Ans. A private carrier is liable for damage or loss of goods intrusted 
to him for transportation, only when the damage or loss arose through 
his failure to use ordinary care. 



5<D PRACTICAL LAW 

Art. 165. — Liability of Common Carriers. 

(a) What is the liability of common carriers? 

Ans. When their liability is not qualified by contract or by. statute, 
common carriers are responsible for all loss or damage, during transporta- 
tion, from any cause whatsoever, except the act of God or the public 
enemy. 

(b) Is this liability often limited? 

Ans. This sweeping liability of the common carrier is usually ex- 
pressly limited, and is often entirely extinguished by the contract between 
the carrier and the shipper. 

Art. 166.— Act of God. 

(a) What is meant by the expression "Act of God?" 

Ans. The expression "Act of God" means such an irrepressible 
disaster as results immediately from natural causes and is not attributable 
to any human agency. 

(b) Can a carrier ever be held liable for damage or loss resulting 
through "Act of God?" 

Ans. Never, under any circu: tances. 

Art. 167. — Loss or Destruction of Goods. 

What is the carrier's liability on goods lost in transit? 

Ans. — If goods under transportation are lost or destroyed through 
means which the carrier might have prevented by the exercise of due 
care, the carrier will, in general, be held liable. 

Art. 168.— Loss From Natural Causes. 

For what is a common carrier not held liable? 

Ans. A common carrier is not liable for loss caused by frost, fer- 
mentation, evaporation, or natural decay, or from the natural wear and 
tear in transportation, provided the carrier exercised reasonable diligence 
to render the loss as slight as possible. 

Art. 169. — Limitation of Liability. 

(a) Upon what do all courts agree regarding carriers ? 

Ans. That a carrier may make a valid stipulation with the shipper 
that the carrier shall not be held liable for loss or damage to the goods 
carried, arising without negligence on the part of the carrier. 

(b) How do some courts go even further regarding this ? 

Ans. Some courts even hold that a common carrier may contract 
for entire immunity from liability. 

(c) When is this particularly true? 

Ans. When the carrier contracts for some special service out of 
the ordinary course of his business. 



QUIZ MANUAL 51 

Art. 170. — Loss on Connecting Line. 

What stipulation may a carrier make regarding connecting lines ? 
Ans. A carrier may make a valid stipulation against liability for 
loss arising on the line of a connecting carrier. 

Art. 171. — Liability for its Own Negligence. 

Is it generally considered good policy to permit a carrier to con- 
tract for immunity against liability arising from its own negligence? 

Ans. No, in the absence of special reasons, it is generally held 
contrary to public policy to permit a carrier to contract for immunity 
against liability arising from its own negligence or that of its agents or 
servants. Such contracts are quite generally held void. 

Art. 172. — Stipulation as to Value. 

What valid stipulation may the carrier make as to value of goods 
shipped ? 

Ans. A stipulation that a carrier shall not be held liable for an 
amount exceeding the valuation placed upon the goods by the shipper, 
in consideration of which the carrier undertakes to transport the goods 
at a less rate than would be asked if they had been appraised at a higher 
value, is valid. 

Art. 173.— Rules. 

Will rules made by carriers be sustained by the courts ? 
Ans. Reasonable rules prescribed by common carriers and brought 
to the attention of shippers will be sustained by the courts. 

Art. 174.— The Bill of Lading. 

(a) What is a bill of lading? 

Ans. A bill of lading is both a receipt and a contract. It is a re- 
ceipt for goods delivered to the carrier; it is a contract to safely carry 
the goods so received. 

(b) Of what further use are bills of lading ? 

Ans. Bills of lading are evidence of property. A carrier who delivers 
goods to a consignee without production of the bill of lading does so at 
his own risk. If the goods are delivered to one not entitled to receive 
them, the carrier will be held liable. 

Art. 175.— Draft with Bill of Lading. 

How does a draft with the bill of lading affect the title to a consign- 
ment? 

Ans. When a shipper names himself or his agent as consignee, and 
sends a bill of lading with a draft attached for collection as a condition 
precedent to delivery, title remains in the shipper, or his assigns, until 
the bill of lading passes into the hands of the consignee by payment of the 
draft. 



52 PRACTICAL LAW 

Art. 176. — Discrimination in Bates. 

Has a common carrier any rights of discrimination between members 
of the public? 

Ans. He has no such right. The carrier must serve all alike and for 
like compensation. 

Art. 177. — Stoppage in Transitu. 

(a) What is meant by the term, "Stoppage in Transitu?" 

Ans. Stoppage in transitu is the right a shipper has, when he dis- 
covers the consignee to be insolvent, to stop the delivery of the goods 
shipped, by giving the carrier notice not to deliver them. 

(b) What may the carrier lawfully require in such case ? 

Ans. Indemnity from the shipper before making the stoppage 
effective. 

(c) Upon what principle is the right of stoppage in transitu based ? 
Ans. It is based upon the plain principle that one man's goods 

should not be used to pay another man's debts. 

(d) When only, can this right be exercised? 

Ans. Only in cases where the vendee's insolvency was unknown to 
the vendor at the time of sale, or when it occurred after the sale. 

(e) When must this right be exercised, if at all? 

Ans. Before delivery of the goods has been made to the vendee. 
After delivery, it is too late. 



SALES OF PERSONAL PROPERTY. 

Art. 178.— Sale. 

(a) Define a sale, giving technical terms for the parties to a sale. 
Ans. A sale is a contract by which one, called a "vendor"' transfers 

property to another, called a "vendee," for a consideration called "pur- 
chase price" paid or to be paid. 

(b) When the purchase price is payable in property, what is the 
transaction called? 

Ans. It is called barter or exchange. 

Art. 179.— Title. 

(a) The purchaser of property must take it subject to what ? 

Ans. One who purchases property takes it subject to all defects in 
the title of its vendor. 

(b) What legal maxim applies to the purchase of all property ex- 
cept negotiable instruments? 

Ans. The maxim, caveat emptor (let the purchaser beware) applies. 



QUIZ MANUAL 53 

ie) What will be the case if you purchase property which the vendor 
did not own and had no right to sell? 

Ans. Generally, the true owner, or the person entitled to possession 
may take it. 

Art. 180.— Bill of Sale. 

(a) When is a bill of sale generally used? 

Ans. When a sale is made of chattels so situated that immediate 
physical delivery is impracticable, it is often necessary and always safe 
to have the vendor execute and deliver a written bill of sale to the vendee. 

(b) Write out a bill of sale transferring some personal property 
to your Commercial Law teacher; see form, page 84, Text. 

(c) What is the chief object of a bill of sale ? 

Ans. To establish the fact that the vendee has honestly acquired 
the property, for value received. 

Art. 181. — Requisites of Sale. 

(a) Name three things necessary to constitute a valid sale. 
Ans. The three requisites to a valid sale are as follows: 

(1) The thing to be sold, which must be in existence. 

(2) A determinable or a determined price. 

(3) An intent to pass title from the vendor to the vendee. 

(b) Give in illustration of the principles just mentioned, two ex- 
amples in which the contract will be voidable by the vendee. 

Ans. (1) If one man sells to another a horse and the horse is dead 
the contract is void. 

(2) Should one man sell to another a house and lot, and the 
house had been partially destroyed by fire, both parties being ignorant 
of the fact, the contract will be voidable on the part of the vendee. 

Art. 182. — Change of Ownership. 

(a) In every sale there is a moment when the property in question 
ceases to belong to the vendor and becomes vested in the vendee. 
Until this occurs, whose is the loss in case the property is damaged or 
destroyed? 

Ans. Until the title has passed to the vendee, the sale is incomplete 
and the loss on the property, if damaged or destroyed, is the loss of the 
vendor. Clearly, if the loss occurs after the sale is complete, the loss 
must fall upon the vendee. 

(b) What controls in determining whether or not the title has passed ? 
Ans. The intent of the parties. 

(c) How, then, is this intent determined? 

Ans. By examining the words and acts of the parties in the light 
of the surrounding circumstances. 

(d) Are there any positive, inflexible rules by which the intent may 
be invariably determined? 



54 PRACTICAL LAW 

Ans. There are not. The courts are guided, however, by the fol- 
lowing principles, namely: 

(1) Sales for cash. 

(2) Sales on credit. 

(3) Condition unperformed by vendor. 

(4) Delivery to vendee. 

(5) Consigned goods. 

(6) Express reservation of the title by vendor. 

Art. 183.— Sales for Cash. 

When does title pass on a cash sale? 

Ans. Upon payment being made, and not before. All sales are for 
cash unless credit has been agreed upon, either expressly or by an es- 
tablished course of dealing. 

Art. 184. — Sales on Credit. 

In sales on credit, when does title pass? 

Ans. When terms of credit have been arranged and the property 
sold has been set aside or designated, so that nothing remains to be done 
by the vendor before making delivery, title will pass at once to the ven- 
dee, unless the parties have otherwise agreed. 

Art. 185. — Condition Unperformed by Vendor. 

(a) How does a condition unperformed affect this title? 
Ans. Unperformed conditions prevent the passing of title. 

(b) What sort of conditions will thus effect title? 

Ans. (1) When something remains to be done by the vendor to 
ascertain the identity (as by selecting), the quantity (as by measuring 
or weighing), the quality (as by testing), of the thing sold. 

(2) If the thing sold is to be put into a certain condition be- 
fore delivery, these, or any of these facts, go to prove that title has not 
passed to the vendee. 

Art. 186. — Delivery to Vendee. 

(a) When is delivery of goods evidence that title has passed ? 

Ans. When goods are sold on credit without reservation of title 
by the vendor, delivery of the goods to the vendee is evidence that title 
has passed to him. 

(b) How does delivery of goods to a common carrier effect title? 
Ans. Delivery of goods to a common carrier designated by the 

vendee (or to any common carrier if the vendee has not designated one) , 
for unrestricted shipment to the vendee, is delivery to the vendee. 

(c) In such case how does the law consider the common carrier? 
Ans. The common carrier is the agent of the vendee. 

(d) Is such delivery subject to stoppage in transit? 



QUIZ MANUAL 55 

Ans. It is, in case the vendee is found to be insolvent before the 
arrival and delivery to him of actual possession of the goods. 

(e) How about shipments C. O. D. ? 

Ans. Delivery to the carrier of goods shipped C. O. D. is not delivery 
to vendee, and, in that case, neither possession nor title will pass to the 
vendee until payment has been made. 

Art. 187. — Consigned Goods. 

(a) What of the passing of title when goods are consigned, to be 
paid for when sold? 

Ans. In this case, no title passes to the consignee. 

(b) In case consigned goods are lost, upon whom does the loss fall? 
Ans. If the goods consigned are destroyed, the loss must fall upon 

the consignor, unless the parties have otherwise contracted. 

(c) Can the consigned goods be levied upon by the creditors of the 
consignee ? 

Ans. They cannot. 

(d) Are the laws of the several states uniform concerning con- 
signed property? 

Ans. They are not. 

(e) Give the additional requirements of some states. 

Ans. Some states require the consignor to give publicity, in some 
manner, to the fact that the goods are consigned and not sold. 

(f) In such states, what will be the result if the consignor fails to do 
this? 

Ans. Failing of this, in such states, the consignor is subject to the 
loss of important rights. 

(g) When consignments are extensive, how only should they be 
made? 

Ans. Only pursuant to carefully drawn contracts. 

(h) What is the relation between consignor and consignee? 

Ans. That of principal and agent. 

(i) By what law, then, is the commission business governed? 

Ans. By the law of Agency. 

Art. 188. — Express Reservation of Title by Vendor. 

(a) Give a provision as between vendor and vendee which is valid 
in all states. 

Ans. Title does not pass to the vendee until full payment is made. 

(b) What do some states hold as to the validity of this provision? 
Ans. That this provision is void as to creditors and third parties, 

who take the property from the vendee without notice of his want of 
title. 

(c) What is a common practice when the vendor desires to retain 
title? 

Ans. To require the vendee to execute a title note. 



56 PRACTICAL LAW 

Art. 189. — Inspection of Goods. 

(a) When should the vendee inspect goods bought? 
Ans. Promptly upon delivery to him. 

(b) For what lawful reason may he reject them? 

Ans. If they prove to be of an inferior kind or quality. 

(c) When must this rejection take place? 

Ans. To exercise this right of rejection, he must act promptly. 

(d) How will unreasonable delay be construed? 

Ans. Unreasonable delay in making inspection and rejection will 
be construed as acceptance. 

(e) What is the result of acceptance? 

Ans. Reception of goods after inspection, or after fair opportunity 
to inspect, waives all objections as to kind and quality. 

Art. 190.— Latent Defects. 

May there be any defects that are not waived by acceptance after 
inspection? 

Ans. Latent defects, not discernable by usual and reasonable 
methods of inspection are not waived by acceptance after inspection. 

Art. 191. — Quality of Goods. 

What implied warranty is there in a purchase ? 

Ans. When goods are purchased in vague and general terms, there 
is an implied warranty that the goods shall be of merchantable quality. 

Art. 192. — Purchase by Particular Description. 

(a) What implied warranty is there when property is purchased by 
a particular description? 

Ans. That the property is of that description. 

(b) If the property proves otherwise than described, what is the 
result ? 

Ans. The warranty is broken, and the vendor is liable for the 
vendee's damages. 

(c) May the vendee take other steps than collecting damages ? 
Ans. Yes, the vendee may rescind the contract and refuse the prop- 
erty. 

Art. 193. — Warranty of Fitness. 

(a) Explain clearly what is meant by "Warranty of Fitness." 

Ans. When a manufacturer or dealer contracts to supply an arti- 
cle to be applied to a particular use, and the buyer trusts and relies upon 
the seller's judgment, and not upon his own, there is an implied warranty 
that the article shall be reasonably fit for the use specified. 

(b) Is this true if the article is of a well-defined kind? 

Ans. No, if the article is of a well-defined kind, even though the 



QUIZ MANUAL 57 

order sets forth the purposes for which the article is to be used, there is 
no such implied warranty. 

(c) Is there, in this case, any implied warranty of any kind? 

Ans. Yes, but only that the article shall conform to the general 
description of articles of its kind, and that it shall be of good material 
and workmanship. 

Art. 194. — Warranty of Food. 

(a) What implied warranty is there in the sale of material for food ? 
Ans. One who sells material for use as food, impliedly warrants 

that it is fit for the purpose. 

(b) What remedy has the vendee if it proves unfit ? 

Ans. The vendee may rescind the sale upon discovery of the fact, 
and may recover damages. 

(c) Has a dealer in foods or medicine ever any greater than a money 
liability ? 

Ans. If a dealer sells food which he knows, or by proper care on his 
part, could have known to be dangerous to the life and health of those 
who, without fault, eat it, he will be liable for the consequences. 

Art. 195. — Warranty in Sales by Sample. 

(a) What is the implied warranty, if any, when goods are sold by 
sample ? 

Ans. That the goods delivered shall equal the sample in quality, 
but there is no warranty" that they shall be better than the sample. 

(b) What will be the case if there be defects in the sample, equally 
visible to both parties? 

Ans. The vendee cannot complain if the goods delivered contain 
the same defects. 

Art. 196.— Fraud in Sales. 

(a) If one purchases goods with the pre-existing intent not to pay 
for them, what- may the seller do? 

Ans. The seller may disaffirm the contract and recover his goods, 
unless the rights of an innocent person have intervened. 

(b) Does the fact that the vendee knew himself to be insolvent 
at the time of purchase constitute fraud? 

Ans. The mere fact that the vendee knew himself to be insolvent 
at the time of purchase is not fraud, provided he bought with intent 
to pay. 

(c) Are sales made in fraud of creditors void? 

Ans. Yes, if both vendor and vendee participate in the fraud, the 
sale will be void, but if the vendee is an innocent purchaser for value, 
the sale is valid. 

(d) Are sales like any other contracts as to vitiation by fraud? 
Ans. Yes, a fraud sufficient to avoid any other contract will avoid 

a sale. 



58 PRACTICAL LAW 

SALES OF REAL ESTATE. 

Art. 197.— Sales of Real Estate. 

(a) What must be true of all contracts for the sale of real estate 
to make them valid? 

Ans. They must be in writing. 

(b) Will not a part payment of the purchase price bind an oral 
bargain for the sale of land ? 

Ans. It will not. 

(c) Land contracts are of how many classes ? 
Ans. There are two classes. 

(d) Name them. 

Ans. (1) Land Options. 

(2) Land Contracts. . 

Art. 198. — Land Options. 

(a) What is a land option? 

Ans. A written instrument, made for a valuable consideration, 
granting a person the right to purchase, if he chooses (but not binding 
him to purchase), certain real estate on certain terms, and within a speci- 
fied time. 

(b) What is usually the occasion for obtaining a land option? 
•Ans. When a person has reason to think he may, at some remote 

future time, desire to buy certain real estate, the usual practice is for 
him to obtain, if possible, an option upon it, running a sufficient length 
of time to enable him to fully decide whether he will or will not make, 
the purchase. 

(c) Are land options ever used for any other purpose than just, 
mentioned ? 

Ans. Yes, land options are frequently used when it is desired to 
buy real estate without disclosing the name of the purchaser until after 
the purchase price has been fixed. 

(d) Why is this? 

Ans. Owners often ask excessive prices if it is known that for certain 
reasons the prospective buyer is in especial need of a particular piece of 
property, and especially, if the buyer is known to be wealthy. 

(e) How might a land option be used to help the buyer in such 
case? 

Ans. By commissioning a third party to obtain an assignable option 
in his own name, fixing the price at a fair amount. 

(f) How is the option then made use of? 

Ans. This option is then assigned to the real estate purchaser, who 
can then tender the price stated in the option and require conveyance of 
the property to himself. 

(g) What can you say of the consideration of the option contract? 



QUIZ manual 59 

Ans. The option contract must be upon a sufficient consideration. 
A gratuitous option is void. 

(h) What special provision may be made in the option contract 
regarding its purchase price? 

Ans. The option may provide that the sum paid for it shall apply 
upon purchase price in the event of purchase. 

(i) What will be considered a sufficient consideration for an option 
contract? 

Ans. The payment of one dollar will be sufficient to make the con- 
tract binding upon the vendor, no matter how great the value of the land 
involved. 

(j) What is usual in the fixing of the amount of consideration for 
an option contract? 

Ans. Land owners usually charge for options a fair compensation 
for the advantage conferred. 

(k) What is the binding force of an option? 

Ans. The vendor is bound to sell if the vendee elects to buy; but 
the vendee is under no obligation to buy. 

Art. 199.— Form of Option. 

(a) With what care should options be executed? 

Ans. When an option is valuable, it should be executed with the 
same formalities required for the execution of deeds. 

(b) What should next be done with it? 

Ans. It should then be recorded in the office where the public land 
records are kept, in the county where the optioned land is situated. 

(c) What is the advantage to the vendee, of recording this option? 
Ans. By recording the option, the owner of the land is prevented 

from selling the property while the option is in force, except subject to 
the option. 

(d) By whom should the land option be signed? 

Ans. It should be signed by all persons who are expected to sign 
the deed to be given in case of purchase. Thus, if the wife of the vendor 
is a necessary party to the anticipated deed she should sign the option 
contract. 

(e) How will the courts treat a refusal on the part of the vendor to 
carry out the terms of the option ? 

Ans. When the vendor named in a valid option refuses to make" and 
deliver the promised deed upon tender of full payment within the ap- 
pointed time, the courts will enforce performance of the contract, or 
will award the vendee damages for its breach, as the vendee elects. 

Art. 200. — Land Contracts. 

(a) Describe a land contract 

Ans. A land contract is a written agreement in which the vendor 



60 PRACTICAL LAW 

undertakes to sell and convey, and the vendee undertakes to buy, make 
payment for, and receive conveyance of, certain land on specified terms. 

(b) What may these terms embrace? 

Ans. Any lawful arrangement which the parties choose to make, 

(c) What is considered sufficient consideration to sustain such a 
contract ? 

Ans. The mutual promises contained in such a contract are a suf- 
ficient consideration to sustain it without payment of money by the 
vendee. 

Art. 201. — Form of Land Contract. 

(See sample form, page 94, Text. 

Art. 202. — Parties to Land Contracts. 

Who should be the parties to a land contract? 

Ans. As in the case of an option, all persons necessary to make such 
final conveyance as is desired, should be joined in the contract as parties 
of the first part. The parties of the second part should include all from 
whom payment is expected. 

Art. 203. — -"Recording. 

(a) What is always a safeguard on the part of the vendee ? 

Ans. It is always the safer course for the vendee to have his con- 
tract acknowledged and recorded. 

(b) What is the value of this recording? 

Ans. It is notice to all the world of the rights of the parties thereto. 

(c) Give a general example. 

Ans. A . contracted with B. to sell B. certain land, B. recorded the 
contract. A. afterward, and while B's contract was in force, sold and 
conveyed the same land to C. C. 's title was subject to B. 's rights. 

(d) Supposing B. had not recorded his contract, what would have 
been the case? 

Ans. If B. had not recorded his contract and C. had bought innocent- 
ly and without notice of B. 's contract, C. would have taken the property 
clear of any claim on the part of B. 

(e) Would B. have any recourse whatever ? 

Ans. Yes, but only as against the vendor, A. , whom he could sue for 
breach of contract. 

(f ) Is there ever any other form of notice to the world than recording ? 
Ans. Yes, the fact that a contract vendee is openly and visibly in 

possession of the property contracted for, is notice to all the world of 
his claim, whether his contract is recorded or not. 

Again, even if the contract vendee has not recorded his contract, and 
is not in actual, visible possession of same, still if a third party acquires 
an interest in said property, with knowledge, or actual notice of vendee's 
rights, the original vendee's rights will hold. 



QUIZ MANUAL 6l 

Art. 204.— Forfeiture. 

(a) Does the law favor forfeitures ? 
Ans. It does not. 

(b) What provisions do land contracts usually make regarding 
payments ? 

Ans. They usually provide that payments shall be made on certain 
dates, and that, if payment is not so made, the contract and all payments 
made thereupon, improvements, etc. , shall be forfeited. 

(c) Can this always be enforced to the letter by the vendor? 
Ans. No, even if payment is not made promptly, the contract is 

not, ipso facto, terminated. 

(d) What is the usual ruling of the courts regarding this? 

Ans. Unless he is grossly in default, the vendee may still tender the 
purchase price and interest, and compel conveyance, unless the vendor 
has, by some affirmative act, brought the contract to an end. 

(e) What affirmative act on the part of the vendor may bring such 
contract to an end? 

Ans. The vendor may terminate the contract by re-entering and 
taking possession of the land, or by some act equivalent thereto. 

(f) If the vendor wishes to terminate a contract because payment 
is not made promptly, when should he act? 

Ans. He should act without such delay as will indicate a contrary 
intention ? 

(g) Why? 

Ans. Because, if the parties do not treat time as an essential element 
of the contract, the courts will not. 

Art. 205.— Deeds. 

(a) When real estate has been sold, how is the vendee given title? 
Ans. By means of a written instrument called a deed. 

(b) By what term is the person making the deed known ? 
Ans. As the grantor. 

(c) By what term is the person to whom the property is being trans- 
ferred known ? 

Ans. As the grantee. 

(d) What are some of the things the deed should show ? 

Ans. The deed should identify these parties by full name and address, 
and should particularly and accurately describe the land conveyed. 

(e) If there be any doubt about the correctness of the description, 
what should be done? 

Ans. A surveyor should be employed for the purpose of making a 
perfect description of the lands by means of fixed landmarks and actual 
measurements. 

Art. 206. — A Certain Quantity, "More or Less." 

(a) What is the reason for some lands being described as contain- 
ing a certain quantity "more or less." 



62 PRACTICAL LAW 

Ans. This is done to cover possible variances caused by correc- 
tion lines in the Governmental Survey. 

(b) Have the parties to the transfer a right to complain of a 
shortage or surplus thus resulting? 

Ans. Neither party can complain of a surplus or shortage, provided 
there has been no misrepresentation or fraud, and provided the discrep- 
ancy is not so great as to indicate that a serious and essential mistake 
has been made. 

Art. 207. — Examination of Title. 

(a) Of what should the grantee in all cases positively assure himself ? 
Ans. Of the sufficiency of the grantor's title. 

(b) Why should this be looked after so closely? 

Ans. Because the grantor cannot convey more or better title than 
he owns. 

(c) What aids are provided in the examination of titles? 

Ans. Abstracts of Title are a common provision for aid in the ex 
amination of titles. 

(d) How far are these abstracts entitled to confidence? 

Ans. Only so far as they are known to have been prepared by com- 
petent persons. 

(e) What further precaution should be taken? 

Ans. In important transations, if not in all, the original records 
should be searched. 

(f) Is it best for ordinary persons to risk making this search of the 
original records themselves ? 

Ans. This service is usually best performed by lawyers. 

Art. 208. — Warranty Deeds. 

(a) How many and what principal kinds of deeds ? 

Ans. Deeds are of two principal kinds, warranty deeds and quit 
claim deeds. 

(b) Why is the warranty deed so called ? 

Ans. Because of certain covenants which it commonly contains. 

(c) Name five of these covenants most commonly used. 

Ans. (1) That the grantor owns the conveyed premises in fee simple, 
absolutely free of any and all incumbrance. 

(2) That he has a good right to convey the same. 

(3) That the premises are free from incumbrance. 

(4) That the grantee shall not be disturbed in his quiet pos- 
session of the premises by reason of any existing defect in the title. 

(5) That the grantor will warrant and defend the grantee 
against eviction by anyone who may prove a paramount title. 

(d) When will these last 4 two convenants be considered broken? 
Ans. Only in case of the actual eviction of the grantee, his heirs or 

assigns. 



QUIZ MANUAL 63 

(e) When are covenants 1, 2, and 3 considered broken? 

Ans. These are broken, if at all, at the moment the deed is executed . 
and are enforcible by the grantee only. 

(f) What remedy has the grantee if covenants 1, 2, 3, and 4, are 
broken? 

Ans. He may recover from the grantor the purchase price of the land, 
plus interest. 

Art. 209.— Quit Claim Deeds. 

(a) What is a quit claim deed? 

Ans. A quit claim deed is a mere relinquishment to the grantee 
of whatever title, if any, the grantor has. 

(b) What covenants does it contain? 
Ans. None whatever. 

(c) How, then, must the grantee accept such deed ? 
Ans. The grantee accepts such a deed as a venture. 

(d) What does the grantee acquire? 

Ans. He may acquire the property in question or he may acquire 
nothing. 

(e) What liability does the grantor of a quit claim deed assume? 
Ans. None whatever. 

Art. 210. — Consideration. 

(a) It is necessary that the consideration stated in the deed be 
the actual sum paid? 

Ans. This is not necessary, though the true amount may be given, 
if desired. 

(b) What may be the object in concealing the true consideration? 
Ans. Often the parties do not care to make the price public. 

(c) How may the consideration be safely written in to avoid this? 
Ans. By writing in "One Dollar and other consideration," although 

the price paid may have been hundreds or thousands of dollars. 

Art. 211. — Execution and Delivery* 

. (a) To make a deed complete for all purposes, what must be done? 
Ans. It must be signed by the grantor or grantors, and acknowledged 
before some proper officer whose certificate of acknowledgment is added 
to the instrument. 

(b) Name some one officer whose certificate of acknowledgment 
would suffice. 

Ans. Any notary public. 

(c) In some states, what further is required? 

Ans. In some states two subscribing witnesses are required. 

(d) May either party to an instrument become a witness to it ? 
Ans. No, but any other person who can write may be, regardless 

of age or sex. 



64 PRACTICAL LAW 

(e) For what are acknowledgement and witnesses not necessary? 
Ans. They are unnecessary as between grantor and grantee, only. 

(f ) Is it ever wise to accept any instrument without all the formal- 
ities? 

Ans. No grantee should accept a deed, or other instrument, without 
all the formalities necessary to make it fully valid for all purposes. 

(g) If the grantor is a married man, what should be required? 
Ans. His wife should join in making the deed. 

(h) What will be the effect upon the grantee's title if the wife of 
the grantor does not sign the deed? 

Ans. The grantor's wife will retain her dower interest. 

(i) What should be done in states recognizing a right of courtesy 
in the husband? 

Ans. In such states the husband should join in all deeds in which 
his wife is grantor. 

(j) What would be the case otherwise? 

Ans. If the husband does not join where such provision exists, his 
interest in courtesy will remain in force? 

(k) How about this in most states? 

Ans. In most states, courtesy has been abolished. 

Art. 212. — Delivery. 

(a) When does a deed become operative? 

Ans. From the time it is delivered by the grantor or his agent to the 
grantee or his agent. 

(b) What of the effects of a deed duly executed, but not yet delivered ? 
Ans. An undelivered deed is of no effect. 

(c) What is meant by putting an instrument in escrow? 

Ans. Placing in the hands of some disinterested party for delivery 
upon the happening of a certain event. 

(d) When does a deed placed in escrow become effective ? 
Ans. From the date of final delivery, but not before. 

Art. 213. — Return of Unrecorded Deed. 

(a) Does the fact that the act of delivering the deed transferring 
the title to the grantee, make it possible to restore the title by returning 
the deed to the grantor? 

Ans. It does not. 

(b) How then must title be restored? 

Ans. A conveyance must be made for that purpose. 

Art. 214. — Estates by Entireties. 

(a) Illustrate an estate in entirety. 

Ans. In most states, a deed to a husband and his wife creates for 
their benefit what is known as an estate in entirety. 



QUIZ MANUAL 65 

(b) What is the law of ownership in such an estate? 
Ans. Each owns the entire property. 

(c) What about the conveyance of such property? 

Ans. Neither has any interest which can be conveyed without 
joining the other spouse in the deed. 

(d) What will happen in case of the death of either spouse ? 

Ans. The survivor retains the entire estate free from all liability 
for payment of the debt of the deceased spouse. 

Art. 215. — Execution of Deeds in Blank. 

Suppose a grantor signs a deed in blank or partly filled, with in- 
structions to an agent to fill up the blanks later; will such grantor 
be held bound by the deed when it is so filled?" 

Ans. He will be bound. 

Art. 216. — Recording. 

(a) Is an unrecorded deed valid? 

Ans. An unrecorded deed is valid as between grantor and grantee. 

(b) What is the general rule regarding this as to third parties ? 

Ans. A third party who innocently gives value for, receives and re- 
cords a second deed from the same grantor (or his assigns) takes a good 
title as against the first grantee whose deed was not recorded so soon. 

(c) What precaution is suggested by this ? 

Ans. That all deeds should be promptly and properly recorded. 



LANDLORD AND TENANT. 
Art. 217. — Lease. 

(a) How is the relation of landlord and tenant created? 
Ans. It is created by contract. 

(b) What is this contract called? 
Ans. It is called a lease. 

(c) Must it be written? 

Ans. A lease may be oral, but an oral lease is not valid for more 
than a year. 

(d) For how long is a written lease valid ? 

Ans. It may be valid for any period, even 999 years. 

(e) What privileges are conferred upon the tenant by a lease ? 
Ans. The peaceable enjoyment of the leased premises. 

(f) What right is conferred upon the landlord? 

Ans. The right to receive a compensation called "rent." 

(g) May a lease embody other agreements than the above? 

Ans. Yes, a lease may embody any lawful agreement into which 
the parties may decide to enter. 



66 PRACTICAL LAW 

Art. 218. — Duties of Landlord. 

What implied covenant is there in all leases ? 

Ans. That the tenant shall have quiet enjoyment of the leased 
premises during his term, or so long as he shall not be in default. 

Art. 219. — Renewah 

(a) Will the law recognize a covenant for renewal "on the same 
terms?" 

Ans. Yes, the law will enforce such a covenant. 

(b) Will the law require that the renewal contain a like clause of 
•renewal ? 

Ans. It will not so require; otherwise the lease might become per- 
petual. 

Art. 220. — Repairs. 

(a) Is a landlord under implied obligation to keep the leased premises 
under repair? 

Ans. He is not. 

(b) Will the fact that the premises are in a ruinous condition work 
a rebatement of the rent? 

Ans. It will not. 

(c) When is a landlord not liable to a tenant for damages resulting 
from the leased premises being out of repair? • 

Ans. The landlord is not thus liable unless he has covenanted to 
keep them repaired. 

(d) If the leased building be destroyed by fire, or otherwise, is the 
landlord under any implied obligation to rebuild? 

Ans. He is not. 

(e) Is the landlord under any obligation to keep the leased prem- 
ises in repair ? 

Ans. In the absence of special agreement to do so, he is not. 

(f) Is the tenant bound to make repairs? 

Ans. In the absence of agreement to do so, he is not. 

(g) Is there ever a time or condition when the landlord is liable 
for damages resulting through his failure to keep any part of the premises 
in repair? 

Ans. Yes, if the landlord fails to keep any portion of the premises 
occupied by himself, in good repair, and damage to tenants arises there- 
from, he may be held liable. 

Art. 221.— Rent. 

(a) What is the tenant's chief duty? 
Ans. To pay the rent reserved in the lease. 

(b) To what is the tenant subject for non-payment of rent? 
Ans. He is subject to eviction. 



QUIZ MANUAL 67 

(c) What, usually, must precede eviction? 

Ans. A notice to quit given by the lessor to the lessee. Like any 
other right, notice to quit may be waived, at the option of lessee. 

Art. 222.— Notice to Quit. 

(a) What of the form of the notice to quit? 
Ans. It need not be in any special form. 

(b) What must be true of the notice? 

Ans. It must describe the premises with reasonable certainty. 

Art. 223. — Re-Entry of Landlord. 

(a) When has the landlord the right of re-entry? 

Ans. When the lease has expired by limitation, or through breach 
of covenant, as, for instance, the non-payment of rent. 

(b) After notice to quit, where required, what right has the land- 
lord further than re-entry of the premises ? 

Ans. He may not only re-enter, but may expel the tenant, provid- 
ing he can do so without committing a breach of the peace. 

(c) What must the landlord not do? 

Ans. He must not use force or violence against the person of the 
tenant, but he may, in a peaceable manner, remove the tenant's goods 
from the premises. 

(d) What should the landlord do in case the tenant cannot be 
evicted without force or violence? 

Ans. He should resort to the courts to secure restitution of his 
property. 

Art. 224. — Destruction by Fire. 

(a) If a leased building be wholly or partially destroyed by fire 
making it untenantable, will the tenant be thereby released from paying 
rent for the remainder of the term of lease ? 

Ans. No, the tenant will have to pay rent to the end of his term, 
unless the lease (as it always should) provides otherwise. 

(b) If the lessee has agreed, without qualification, to keep the leased 
building in as good a state of repair as when taken, what will he be held 
for? 

Ans. He will be held to repair all damage, or to rebuild in case the 
building be destroyed, unless the damage or destruction be caused by 
act of God or the public enemy. 

(c) What qualifying term is usually inserted? 

Ans. "Excepting damage by the elements, the public enemy, or 
the Act of God." 

Art. 225. — Assignment of Lease. 

(a) When may a lessee assign his lease. 

Ans. At any time, unless he has covenanted against so doing. 



68 PRACTICAL LAW 

(b) Does sub-letting a part of the leased premises violate a covenant 
not to assign? 

Ans. It does not. 

(c) Would this be in violation of a covenant not to assign the lease 
or any part of it? 

Ans. It would. 

(d) For what is the assignee liable to the lessor ? 

Ans. For all the terms of the lease, even though none are mentioned 
in the assignment. 

EXAniNATION NO. 3. 

Embracing the subject of Special Contracts, treated in Articles 
120 to 225 inclusive appearing in Practical Law. Answers to the follow- 
ing questions should be neatly written and handed to the teacher. Num- 
ber each answer to correspond with the question. Write your name and 
current date on each sheet. Mark your paper Examination No. 3. 
Write only on one side of the sheet, and avoid erasures, blots, check 
marks, or other disfigurements. 

1. Define (a) Principal 

(b) Agent. 

2. Name two kinds of agents and define each. 

3. What is a "Power of Attorney"? 

4. What is the highest duty of an agent ? 

5. Give each of three ways in which an agent may bind himself. 
6 How should an agent sign ? 

7. What is the result to an agent if he disregards instructions ? 

8. What is meant by ratification? 

9. How may the authority of an agent be conveyed? 

10. Name five ways in which an agency may be terminated. 

11. What constitutes a Partnership? 

12. Name and define each of three classes of partners. 

13. Name two kinds of partnerships as to their purpose. 

14. By what kind of contracts may partnerships be created ? 

15. What of a partner's authority to loan the firm's money to him- 
self? 

16. Will the firm be bound if a partner borrows money ostensibly 
for the firm and then uses it himself ? 

17. What is the partnership law regarding 

(a) Sharing losses and gains? 

(b) Liability for firm's obligations ? 

18. In the absence of special agreements, what about the compen- 
sation of individual partners ? 

19. Name five ways in which a partnership may be dissolved. 

20. Who should be notified in case of dissolution of partnership, 
and how ? 



QUIZ MANUAL 69 

21. What are the terms applied by law to the employer and 
employee ? 

22. Name four special duties of the employer. 
23 What about assumed risks? 

24. What about negligence of fellow servants? 

25. What is meant by contributory negligence? 

26. Tell what you know about the payment of an employee? 

27. What is the duty of an employee ? 

28. Name five good causes for the disharge of an employee. 

29. Give the employee's two remedies for failure to receive pay 
according to contract, or for wrongful discharge. 

30. What is the law governing the salary of an employee who con- 
tinues to serve after the expiration of a definite contract? 

31. (a) Name two kinds of carriers? 
(b) Define each. 

32. Give the liability of each class of carriers. 

33. What can you say on the the subject of " Limitation of Liability ?" 

34. What of a carrier's liability for its own negligence ? 

35. When is a stipulation as to value held valid ? 

36. (a) May reasonable rules be lawfully prescribed by carriers, 
if brought to the attention of the shippers ? If so, give an example. 

37. What is the three-fold nature of a "Bill of Lading?" 

38. What can you say regarding a draft with bill of lading? 

39. What right of discrimination has a common carrier? 

40. (a) Define "Stoppage in Transitu." 

(b) When must this right be exercised, if at all? 

41. Define the term Sale, using the technical terms applied to the 
seller and the buyer. 

42. What is meant by the term "Caveat Emptor ?" 

43. What is a "Bill of Sale?" 

44. What is the chief reason for requiring a bill of sale ? 

45. Name three requisites of a valid sale. 

46. (a) What is the law governing loss or destruction of property 
during sale negotiations? 

(b) When does title pass in a cash sale? 

(c) When does title pass in a credit sale? 

47. When is title passed on consigned goods ? 

48. Define "Latent Defects." Illustrate. 

49. What is a "Title Note?" 

50. What is the result of an unreasonable delay in the inspection 
of goods. 

51. Will part payment bind the bargain in an oral contract for the 
sale of real estate? Why? 

52. What is a "Land Option?" 

53. (a) What is a "Land Contract?" 



70 PRACTICAL LAW 

(b) What is the least that will constitute a sufficient considera- 
tion in a land contract ? 

54. (a) Who are the parties of the first, and who and the parties of 
the second part, in a land contract? 

55. Give two important facts regarding forfeiture. 

56. By what means should you strive to receive title to real estate ? 

57. Of what should the buyer always assure himself regarding the 
examination of title? How? Why? 

58. Name the covenants commonly contained in a "Warranty Deed. " 

59. Explain "Estates in Entireties." 

60. What is the effect of executing and delivering a deed in blank ? 

61. How is the relation of landlord and tenant created? What 
called ? 

62. Give the general rights conferred upon a tenant by a lease. 

63. What is the chief duty of the landlord ? 

64. Give five rules governing repairs. 

65. What is the tenant's chief duty? 

66. Give tenants liability for rent in case of partial or entire de- 
struction of tenement. 

67. Give three steps sometimes necessary to the eviction of a tenant. 

68. Give landlord's liability to tenant in case the tenant is partially 
or wholly destroyed. 

69. What are the lessee's rights in regard to sub-letting? 

70. What are lessee's rights in regard to assigning? 



BANKING. 

Art. 226.— Banks. 

(a) What classes of banks have we as to organization? 
Ans. There are three; National, State and Private. 

(b) Define each. 

Ans. (1) A national bank is a corporation organized under the laws 
of the United States. 

(2) A state bank is a corporation organized under the laws 
of some particular state. 

(3) A private bank is an unincorporated concern, sometimes 
unrestricted by state or federal supervision, and generally conducted 
under sole ownership or partnership organization. 

(c) What can you say of the existence of savings banks? 
Ans. They exist under the laws of most states. 

(d) What power is generally given them regarding loans ? 

Ans. They are usually empowered to loan a portion of their deposits 
upon real estate securities. 

(e) What peculiarity regarding a savings bank's solicitation of 
deposits ? 



QUIZ MANUAL 7 1 

Ans. They usually invite small as well as large deposits, and pay 
a low rate of interest upon balances left on deposit during a specified 
time. 

(f ) What do they give as evidence of deposits made ? 
Ans. A pass book. 

(g) What of the significance of the terms usually printed in these 
pass books. 

Ans. In general, they amount to a contract between the depositor 
and the bank. 

Art. 221, — General Deposits. 

(a) When one makes a general deposit upon open account in a 
bank, what is the relationship established? 

Ans. The bank merely becomes the depositor's debtor. The money 
becomes the bank's property. 

(b) If money so deposited is lost or stolen, whose is the loss ? 
Ans. The bank is the loser. 

(c) Under what condition must the bank return the money so de- 
posited to the depositor? 

Ans. No matter what becomes of the money, the bank must return 
to the depositor a like amount on demand. 

(d) How is this demand made by the depositor? 
Ans. The demand is made by check. 

(e) What is a check? 

Ans. A check is a written order directed to the bank requiring it 
to pay a certain sum of money to a certain person or firm therein named, 
or to his or their order, or to bearer, upon presentation. 

(f) What is meant by presentation? 

Ans. Presentation of a check for payment is a demand of payment. 

(g) What will be the case if a bank, having sufficient of the deposi- 
tor's funds to meet the check, refuses payment of the depositor's check? 

Ans. The bank will be liable to the depositor for all damages arising 
from the non-payment. 

Art. 228. — Presentation of Check. 

(a) When should a check be presented for payment? 

Ans. If the person receiving the check and the bank upon which 
it is drawn are in the same place, the check must (in the absence of some 
sufficient excuse) , be presented on the same day or, at latest, before the 
close of business hours on the day after it is received. 

(b) What is the case if the person receiving the check and the bank 
upon which it is drawn are in different places? 

Ans. Then the check must be forwarded at the time it should other- 
wise have been presented. 

(c) Under what conditions only may these rules be varied? 
Ans. Only by showing strong reasons for non-compliance. 



72 PRACTICAL LAW 

Art. 229. — Stoppage of Payment. 

(a) When may payment of a check be countermanded ? 

Ans. At any time before the bank has made acceptance or payment. 

(b) How should the drawer stop payment? 

Ans. The drawer merely gives the bank a description of the check, 
together with instructions not to pay such check upon presentment. 

Art. 230. — Check not an Assignment. 

(a) Does a check act as an assignment? 

Ans. A check does not operate as an assignment to the payee of 
any part of the drawer's funds on deposit. 

(b) When is a bank liable to the holder of a check ? 

Ans. When it accepts or certifies the instrument, and not before. 

(c) When is a bank bound to pay a check it has accepted or certi- 
fied? 

Ans. Upon demand of the holder 

Art. 231.— Certified Checks. 

(a) By whom and how is a check certified ? 

Ans. A check is certified by the cashier or teller of a bank on which 
it is drawn, writing the word "Certified," or "Good," or some equivalent 
expression, across the face of the check and signing his name thereto, 
as cashier or teller, as the case may be. 

(b) What does the bank always do, upon the certification of a check ? 
Ans. The bank immediately charges the amount of the certified 

check to the drawer's account, and then assumes the payment. 

(c) If a check already certified is received in payment of debt, and the 
certifying bank is insolvent, or fails before the check can, by the exercise 
of proper diligence, be presented for payment, will the drawer be released 
from liability? 

Ans. No, the drawer will, in such case, remain liable for the debt 
which the check was given to pay? 

(d) When one who has received a check in payment of a debt there- 
after causes the check to be certified, how does this action effect the 
drawer and indorser? 

Ans. The drawer and all indorsers are thereby discharged from 
liability. 

(e) What is the reason for this? 

Ans. At the time the check was certified, demand for payment 
might have been made. 

(f) What general principle is this based upon? 

Ans. That the holder of a check, having elected not to demand 
payment when he might have done so, must thereafter abide the con- 
sequences of his choice. 



QUIZ MANUAL 73 

Art. 232.— Forged Checks. 

(a) On what ground is forgery punishable? 
Ans. It is punishable as a crime. • 

(b) Is it very prevalent? 

Ans. Yes, it is a danger which constantly menaces banks. 

(c) Since a bank must not pay out deposits except on valid orders 
from its depositors, what follows? 

Ans. If a bank pays out money on a forged check, the bank cannot 
ordinarily charge the amount so paid against the account of its de- 
positor. 

(d) Is there ever any exception to this? 

Ans. Yes, in case the depositor's negligence has, in some way, 
contributed to induce the payment. 

(e) What is a bank absolutely bound to know regarding a check? 
Ans. To know the signature of its depositors. 

(f) What is generally the result if a bank pays a check bearing the 
forged signature of a depositor ? 

Ans. The bank cannot, in general, recover the amount from a bona 
fide holder to whom it has made payment. 

(g) What may be the result if a bank pays a "raised" check? 

Ans. It may recover the amount of the fraudulent increase, even 
from a bona fide holder to whom the bank has made payment. 

(h) Why is this relief granted ? 

Ans. While a bank must know its depositor's signature, it cannot 
be presumed to know what he has written in the checks. 

Art. 233.— Returned Checks. 

(a) What is generally held to be the depositor's duty regarding 
paid checks. 

Ans. To examine the paid checks returned to him by the bank, 
for forgery. 

(b) What will generally be the result if the depositor negligently 
fails to detect forgeries ? 

Ans. Generally, he must bear the loss. 

Art. 234. — Special Deposits. 

Does the relation of debtor and creditor exist when money is de- 
posited with and accepted by a bank to be paid out for a special pur- 
pose? 

Ans. Such relation does not exist. The money does not become 
the property of the bank. 

Art. 235.— Set Off. 

(a) The relation between a bank and its depositor being that of 
debtor and creditor, what follows? 



74 PRACTICAL LAW 

Ans. It follows that the bank is bound to pay all checks of the de- 
positor, so long as it has sufficient funds in its possession for that pur- 
pose. 

(b) What exception is there to this rule? 

Ans. When a depositor owes a bank a matured debt, it is equally 
the right of the bank to set such debt against funds credited to the debtor 
on its books. In other words, the bank may appropriate a deposit to 
the payment of a matured debt due from the depositor to the bank. 

(c) What is this right of the bank called? 
Ans. It is called the right of ' ' Set Off. ' ' 

Art. 238. — Instruments Payable at Bank Treated as Checks. 

(a) What is said to be equivalent to a check drawn against a de- 
positor's account? 

Ans. A bill or note made payable at the bank where the obligor 
keeps his account. 

(b) By the law of Set Off, what may the bank do with such bill or 
note? 

Ans. The bank may make payment and charge the paid instrument 
against the account of the obligor. 

Art. 237.— Overdrafts. 

(a) What is an overdraft? 

Ans. When a bank has paid its depositor's checks to an amount ex- 
ceeding the deposit, the depositor is said to have made an overdraft. 

(b) What sort of a debt does it become? 

Ans. A debt immediately due the bank, and as collectible as any 
personal account. 

(c) What are the rules of most banks regarding overdrafts ? 
Ans. They very properly prohibit overdrafts. 

Art. 238.— President. 

(a) Has the president of a bank authority to act as its agent? 
Ans. No, except as such power is conferred upon him. 

(b) How may such authority be conferred upon him ? 
Ans. Either expressly or by necessary implication. 

(c) How is a bank president's authority to be ascertained? 

Ans. From the statutes under which the bank is conducted, the 
character, the by-laws, and the adopted motions or resolutions of the 
board of directors. 

Art. 239.— Vice-President. 

(a) What are the duties and powers of the vice-president? 

Ans. During the absence or disqualification of the president, the 
vice-president may exercise all powers and duties ordinarily exercised 
by the president. 



QUIZ MANUAL 75 

Art. 240.— Cashier. 

(a) What is the implied authority of the cashier of a bank? 
Ans. The cashier's implied authority is quite limited. 

(b) May he be given more authority? 

Ans. He may be given express authority to carry out any transac- 
tion, or class of transactions, delegated to him by the board of directors. 

(c) In the absence of express authority, when has he power to bind 
the bank? 

Ans. Only when he acts within the general scope of his ordinary 
duties. 

(d) What authority must he have to go beyond these? 
Ans. He must have the authority of the board of directors. 

(e) What rights has the cashier, by reason of his position, as to third 
parties ? 

Ans. (1) To receive payment of debts. 

(2) To cancel obligations and surrender securities. 

(f) Name two things he has no implied power to do. 

Ans. (1) He has no implied power to receive payment in anything 
other than money. 

(2) He cannot make binding contracts outside the scope of 
his ordinary duties. 

Art. 241. — Powers of Directors. 

(a) Within what limits, only, have the directors power to manage 
and control the affairs of the bank ? 

Ans. Within the limits of its character purposes, but not beyond. 

(b) To whom may the directors delegate special duties? 

Ans. To the president, cashier, or other officers, but they cannot 
confer upon another a power which they do not themselves possess. 

(c) Illustrate. 

Ans. For example, they cannot authorize the president or cashier 
to speculate in stocks, real estate, or other property. 

(d) May a bank own stocks in other corporations? 

Ans. Generally it may not, except when it acquires them for the 
purpose of protecting itself against imminent loss. 

(e) When may a bank purchase real estate ? 

Ans. A bank may buy real estate necessary for the conduct of its 
own business, but it cannot buy real estate for speculative purposes. 

Art. 242. — Liabilities of Directors. 

(a) What are the liabilities of directors who serve without pay? 

Ans. Except when otherwise provided by statute, bank directors 
who receive no pay for their services are not responsible to the bank for 
anything short of gross negligence, fraud or reckless inattention to duties, 
whereby frauds are permitted. 



76 PRACTICAL LAW 

(b) Are they held liable for a mistaken use of discretion? 
Ans. They are not, even though loss ensues. 

Art. 243. — Collections. 

(a) What is said to be the weight of authority regarding the liability 
of a bank for collection made from a distant party ? 

Ans. By the weight of authority, a bank that receives for collection 
the note, draft or other claim of a customer upon a party residing at some 
distant point, is liable for the loss of the proceeds of the collection through 
the failure or default of a correspondent to whom the bank has sent the 
item for collection. 

(b) Illustrate. 

Ans. If A. delivered a note to. a bank for collection from C. at a 
distant point, and if the bank sent the note to D. , its correspondent bank, 
and if D. collected the note and kept the proceeds, the first bank would, 
under the principle just stated, be bound to bear the loss and pay to A. 
the full amount collected by D. 

(c) By whom is this doctrine denied? 

Ans. The courts of many states deny this doctrine, and hold that, 
when a note, draft or other claim is left with a bank for collection in 
the regular course of business, and the bank transmits the claim, ac- 
companied with proper instructions, to a correspondent of supposed 
responsibility, selected with reasonable care, the forwarding bank will 
not be liable to the owner of the claim if the correspondent makes the 
collection and misappropriates the proceeds. 

(d) In case of such difference of opinion, what should the business 
man always do? 

Ans. He should ascertain the law as laid down by the courts of his 
own state. 



COMMERCIAL PAPER. 

Art. 244. — Classes of Paper. 

(a) What is included under the head of "Commercial Paper?" 

Ans. Commercial paper includes all transferable written instru- 
ments used in carrying on trade and commerce. 

(b) Name a few of the more common of these. 

Ans. Bills of lading, warehouse receipts, stock certificates, checks, 
drafts, certificates of deposit, promissory notes, money-bonds, and 
coupons. 

(c) When are these instruments transferable ? 

Ans. Unless restricted by their own terms, these instruments are 
all readily transferable. 

(d) What of the title of the purchase of such instruments? 



QUIZ MANUAL 77 

Ans. The purchaser takes at least as good, and sometimes a better, 
title than was possessed by the transferor. 

(e) What name is applied to such papers as carry with them a better, 
title and broader rights to the transferee than were held by the trans- 
feror ? 

Ans. Such papers are called negotiable instruments. 

Art. 245. — Negotiable Instruments. 

(a) Name two strictly negotiable instruments. 

Ans. The two forms of papers said to be strictly negotiable, are 
bills of exchange, and promissory notes. 

(b) What are included under promissory notes? 

Ans. Ordinary notes of hand, and also certificates of deposit issued 
by banks. 

Art. 246. — Advantages of Negotiability. 

(a) What instruments may be bought and sold ? 

Ans. In general, any instrument, whether negotiable or not, may 
be bought and sold. 

(b) To what infirmity is the transfer of a non-negotiable instrument 
subject ? 

Ans. In case of the transfer of a non-negotiable instrument, the 
transferee merely "stands in the shoes" of the transferor. 

(c) What defenses may be urged against the purchaser of a non- 
negotiable instrument? 

Ans. Defenses against the seller of a non-negotiable instrument 
may be urged with equal force against t? e purchaser of it. 

(d) Will not the fact that the purchaser of a non-negotiable paper 
has given value for it and that he bought it innocently and before it is 
due, protect him against defects in his transferor's title? 

Ans. Generally, it will not. If the transferor's title was imperfect, 
the transferee's title will be likewise imperfect- 

(e) In what respect is the purchaser of a non-negotiable paper like 
the purchaser of any other chattel ? 

Ans. In that he buys at his own peril. 

(f) Is this true of a purchaser of a negotiable paper who becomes a 
holder in due course? 

Ans. No, as such holder, he takes perfect title to the paper, although 
the transferor's title may have been defective. 

(g) Would the transferee have a good title under above conditions 
if the negotiable paper were stolen ? 

Ans. Yes, even though it may have been stolen from the maker, 
and although the transferor may have been the thief, still, with certain 
exceptions, the transferee may take perfect title. 



78 PRACTICAL LAW 

(h) Name two of these exceptions. 

Ans. (1) Unless the instrument is a forgery, or the equivalent of 
a forgery. 

(2) Is for some other reason void. 

Art. 247. — Holder in Due Course. 

(a) Under what condition can one not become a holder in due 
course ? 

Ans. (1) Unless the paper is complete and regular upon its face. 

(2) Unless he purchases it in good faith, without notice of 
defense. 

(3) Unless he purchases before maturity. 

(4) Unless he purchases for value. 

(b) Why may not the purchaser of a paper which is obviously in- 
complete or irregular be considered a holder in due course ? 

Ans. Because the defect apparent upon the face of the instrument 
itself is notice to him that something is wrong, and, if he buys, he takes 
it subject to such notice. 

(c) What becomes the purchaser's duty? 
Ans. It becomes his duty to investigate. 

(d) What will be the result if the buyer neglects this duty? 
Ans. He must suffer the consequences. 

(e) Why should a paper being overdue at time of purchase prevent 
the buyer from becoming a holder in due course? 

Ans. Because the fact that a paper was dishonored, or was not paid 
at maturity, is indication that there is something wrong. 

(f) Give a case in which a person failed to become a, holder in due 
course because he did not give adequate value. 

Ans. In the case of DeWitt v. Perkins, 22 Wis., 451. A note of 
$300.00 given by a responsible person was sold for $5.00. The court 
held that the purchaser was not a holder in due course. 

(g) Why should not a person become a holder in due course of paper 
which he has not purchased in good faith ? 

Ans. Because if he could, one might, by collusion, turn an instru- 
ment against which defenses are claimed, over to a third person, who 
would then have power to collect it without regard to the rights of the 
obligor, and thus much injustice be done. 

(h) What of set-offs and recoupments which might have been valid 
against such papers? 

Ans In the hands of the transferor or other holders, set offs and 
recoupments cannot be applied to the instrument when in the hands of 
a holder in due course. 

Art. 348. — Transferee of Holder in Due Course. 

What are the rights of one who derives his title to an instrument 
through a holder in due course? 






QUIZ MANUAL 79 

Ans. If he is not himself a party to any fraud or illegality affecting 
the instrument, he has all the rights of his transferor as to parties prior 
to such transferee. 

Art. 249. — Persons Not Holders in Due Course. 

(a) When one purchases an instrument under conditions which 
prevent him becoming a holder in due course, he must take it subject to 
what? 

Ans. Subject to all the defenses that could be made against it, 
were it non-negotiable. 

(b) Can you express this differently? 

Ans. In other words, the special legal advantages surrounding 
negotiable instruments are available to holders in due course only. 

Art. 250. — Reason for Protecting Holders in Due Course. 

(a) Why are negotiable papers given special advantages ? 
Ans. For the purpose of encouraging their use. 

(b) Why is this necessary? 

Ans. There is not enough money in the world to permit the transac- 
tion of the world's business. 

(c) How does the protection of negotiable paper help ? 
Ans. The deficit is covered by the use of commercial paper. 

(d) Give another reason. 

Ans. The carrying of money and its transportation from place to 
place, particularly in large sums, is both inconvenient and dangerous. 

(e) Name three forms of commercial paper which have thus become 
as important as money to trade. 

Ans. The check, the draft, and the promissory note. 

(f) How have these instruments come to be used, and through what 
means ? 

Ans. Under the special protection afforded by law, to holders in 
due course, these instruments pass from hand to hand very much like 
money. 

(g) What proportion of trade is carried on by their use ? 
Ans. The greater portion. 

(h) Mention a few special ways in which they facilitate commerce. 
Ans. (1) They enable credit to stand in the place of cash. 

(2) They do away with the slow process of counting. 

(3) They lessen the dangers of transportation. 

(4) By filling the gap between the actual money of the country 
and the volume of the country's business, they render our financial 
system elastic and self -regulating. 



80 PRACTICAL LAW 

Art. 251. — The Negotiable Instruments Law. 

(a) What proportion of the states of the union have adopted prac- 
tically uniform statutes regarding such papers ? 

Ans. More than half. 

(b) By what name are these statutes known? 

Ans. These uniform enactments are known as the "Negotiable 
Instruments Law." 

(c) How does this law effect much that was formerly uncertain and 
in dispute? 

Ans. It renders certain, much that was formerly very uncertain. 

(d) Why, think you, has the Negotiable Instruments Law been 
followed in the preparation of our text? 

Ans. (1) Partly because it is the statute law in a majority of the 
states. 

(2) Partly because it declares the most advanced position 
yet attained in the law of negotiable instruments. 

(e) With what papers only does the Negotiable Instruments Law 
deal? 

Ans. With bills of exchange and with promissory notes. 

(f) Why is this true? 

Ans. Because these are the only truly negotiable instruments. 

Art. 252. — Bills of Exchange. 

(a) What is a bill of exchange? 

Ans. A bill of exchange is an unconditional order in writing ad- 
dressed by one person to another, signed by the person giving it, requiring 
the person to whom it is addressed to pay on demand, or at a fixed and 
determinable future time, a certain sum of money to order or to bearer. 

(b) By what names are bills of exchange more familiarly known? 
Ans. They are more familiarly known as checks and drafte, and are 

frequently referred to as "bills" for the sake of brevity. 

(c) Bills of exchange are of what two classes? 
Ans. Foreign and inland, (or domestic). 

(d) Define each. 

Ans. When a bill (i. e. a check or draft) is both drawn and made 
payable within one and the same state, it is a domestic, or inland bill. 
All others are foreign bills. 

(e) Illustrate each. 

Ans. A check drawn in Springfield, III, and payable in Chicago, 
111., is an inland bill; but a check drawn in Indianapolis, Ind., and pay- 
able in Chicago, 111. , is a foreign bill. 

Art. 253. — Promissory Notes. 

(a) What is a negotiable promissory note ? 

Ans. An unconditional promise in writing, made by one person to 



QUIZ MANUAL 



8l 



another, signed by the maker, engaging to pay on demand, or at a fixed 
or determinable future time, a certain sum of money to order, or to bearer. 

(b) What are promissory notes usually called? 

Ans. For the sake of brevity, they are usually called "notes." 



THE LEGAL HISTORY OF A BILL OF EXCHANGE. 

Art. 254. — Issue of Bill. 

(a) Draw up the draft corresponding with the following memoran- 
dum: Mulford & Co., of Chicago, having sold goods in the amount 
of $500.00 to Geo. Grant., of New York, upon the latter's agreement to 
accept their draft, drawn payable ten days after sight, drew and dis- 
counted at the Bank of Commerce, Chicago, the following instrument; 

$500.00 Chicago, III, {current date), 19 ■ ■ 

At Ten days Sight, pay to the order of Mulford & Co., Chicago, III., 
Five Hundred Dollars. 

Value received, and charge to the account of 
To George Grant, \ Mulford & Co. 

Detroit, Mich. \ 

Art. 255.— Parties to the Bill. 

(a) Who are the original parties to the bill above outlined? 
Define each. 

Ans. Mulford & Co., are the drawers; Geo. Grant is the drawee; 
Mulford & Co. , is the payee. 

(b) Illustrate the indorsement on back of the draft, drawn up under 
question (a), as it would appear when the draft was discounted at the 
bank. 



Ans. 

Pay to the order of the Bank of Com- 
merce, Chicago. 

Mulford & Co. 

(c) On the back of the draft you drew up under question (a) show, 
in proper form, an indorsement in full to the Chicago City Bank, Chicago, 
III. 

Ans. 



Pay to the order of the Bank of Com- 
merce, Chicago. 

Mulford & Co. 

Pay to the order of the Chicago City 
Bank. 

Bank of Commerce, Chicago. 



82 



PRACTICAL LAW 



(d) The Chicago City Bank upon receipt of this draft, immediately 
sent it to the Corn Exchange National Bank, Chicago, for collection. 
Show all indorsements which should appear on the back of this draft 
up to date. 

Ans. 






Pay to the order of the Bank of Com- 
merce, Chicago. 

Mulford & Co. 

Pay to the order of the Chicago City 
Bank. 

Bank of Commerce, Chicago. 

Pay to Corn Exchange Nafl Bank for 
Collection. 

Chicago City Bank. 



Art. 256. — Presentation and Acceptance. 

(a) The Corn Exchange National Bank, immediately upon receipt 
of this draft, presented it to the drawee and had it accepted. How is 
this done ? 

Ans. By the drawer writing across the face of the draft the word 
"accepted," the date, and signing his name. 

(b) The drawee's relation to this accepted instrument now becomes 
the same as if it were what other form of negotiable paper ? 

Ans. His promissory note. 

Art. 257. — Maturity. 

(a) This draft now has how long to run ? 
Ans. Ten days from date of acceptance. 
((b) It therefore falls due when? 
Ans. On the tenth day from acceptance. 

(c) If this due date falls upon a Sunday or legal holiday, when should 
the instrument be presented for payment? 

Ans. On the next following business day. 

Art. 258. — Dishonoring a Bill. 

(a) Suppose that upon presentment for payment, by the endorsee 
or holder, this instrument was dishonored. Explain fully what this 
means. 

Ans. It means, in this case, the drawee and acceptor, (George Grant) , 
refused to pay the draft when presented for payment by the holder. 

(b) Who is the present indorsee or holder ? 
Ans. The Corn Exchange National Bank. 



QUIZ MANUAL 83 

(c) Is this draft a foreign or domestic bill ? 

Ans. It is a foreign bill of exchange, because it is drawn by a party 
in one state, and payable in another state. 

Art. 259.— Protest. 

(a) It now becomes necessary (since this is a foreign bill), for the 
holder to do what? 

Ans. It becomes necessary for the holder to protest the bill. 

(b) How is this done? Explain briefly. 

Ans. The holder makes a sworn statement, acknowledged by a 
notary public, to the effect that the paper was by him duly presented 
for payment in full accordance with the requirements of law and that the 
drawee refused payment. 

(0) What is the purpose of this step? 

Ans. It constitutes due notice to all parties concerned, and pre- 
vents the drawers and indorsers being discharged . from further liability. 

(d) How is protesting a bill likely to effect the credit of the drawee? 
Ans. It seriously damages his credit? 

Art. 260. — Notice of Dishonor. 

(a) This instrument having been duly protested, what notice should 
be sent, by whom, and to whom? 

Ans. A notice of this protest, giving full description of the instru- 
ment protested, should be given by the holder of the protested instru- 
ment to all parties to the instrument. 

(b) If, for any reason, this notice was not given, what would be 
the effect upon the drawers and indorsers of the instrument ? 

Ans. It would release them from all liability. 

(c) Would this notice have to be written? 

Ans. Notice of protest should always be written. Notice of dis- 
honor need not be written, but is better so, as it is then more easily proved 
that notice has been given. 

(d) What if the notary public does not give this notice upon re- 
quest of the holder? 

Ans. If the notary public does not attend to it, the holder, or some 
other agent of the holder, must. 

(e) What of the form of the notice of dishonor? 

Ans. No special form of notice is required by law. (For a good 
form, see page 126, Text.) 

Art. 261. — Discharge for Want of Notice. 

(a) How are drawers and indorsers of a draft affected if not given 
prompt notice of its dishonor? 

Ans. They are discharged from liability thereupon. 

(b) What kind of notice is required? 



84 PRACTICAL LAW 

Ans. Either written or verbal notice will suffice. 

(c) Which is usually given, and why? 

Ans. Written notice is generally given, as it is more readily capable 
of proof. 

(d) Who may waive notice, and how? 

Ans. A drawer or indorser may waive notice, either by words or 
acts. 

(e) Is one who has waived notice entitled to it ? 
Ans. He is not. 

Art. 262. — Settlements After Dishonor. 

(a) The draft in question having been properly protested and 
notice having been given to Mulford & Co., and to the Bank of Com- 
merce, Chicago, what would result? 

Ans. The Bank of Commerce would be obliged to return to the 
Chicago City Bank, any funds which the latter had invested in the 
paper, together with the cost of protest and notice. 

(b) Would the Bank of Commerce then have any recourse? 

Ans. Yes, it could then proceed to collect from Mulford & Co., 
such sums as it had advanced upon the paper, together with interest 
and expense. 

(c) What would be the next natural procedure? 

Ans. Mulford & Co. , would then proceed to enforce their claim against 
the drawee, Geo. Grant, the same as though they were the holders of his 
note. 

THE LEGAL HISTORY OF A PROMISSORY NOTE. 

Art. 263.— Issue of Note. 

(a) R. Wilson, of Chicago, purchased from Ray Krause & Co., 
of New York City, goods to the value of $1,000.00 for which he made 
payment by delivering to R. Krause & Co. the following sixty-day, 6% 
negotiable note, upon which Henry Vogel was surety, and payable 
at the Merchants Bank, Chicago. Illustrate this note drawn up in proper 
form. 

Ans. Chicago, III. , (Current date) ig 

Sixty Days after date I promise to pay to the order of Ray Krause & 
Co., New York, the sum of One Thousand and no / ioo Dollars, payable at 
Merchants Bank, Interest at 6 per cent. Value received. 

R. Wilson. 
Henry Vogel. 
Art. 264. — Indorsement in Blank. 

(a) Upon receiving the note, Ray Krause & Co. wrote their firm 
name across the back of the note. What kind of an indorsement is this 
called? 



QUIZ MANUAL 85 

Ans. This is an indorsement in blank. 

(b) What is necessary to transfer this note? 

Ans. Delivery only. 

This note then passed into circulation and was transferred without 
indorsement, through the hands of several parties, until it finally came 
into the hands of Merritt Rathje. 

Art. 265. — Indorsement in Full. 

(a) Mr. Rathje, being a careful man, knew that the note indorsed 
in blank, was subject to what? 

Ans. To theft. 

(b) Knowing this, he wrote above the blank indorsement of Ray 
Krause & Co. the words, "Pay to the order of Merritt Rathje;" this 
converted the blank indorsement into what kind of an indorsement ? 

Ans. Into a special indorsement, commonly called an indorsement 
in full. 

(c) Had Mr. Rathje a right to do this ? 

Ans. Yes, Mr. Rathje, or any other holder, always has a perfect 
right to thus change a blank indorsement into an indorsement in full. 

(d) Upon what ground has a holder the right to do this ? 

Ans. Upon the ground that the act in no way increases the liability 
of the maker or indorsers, hence they cannot object. 

(e) What kind of paper has Mr. Rathje made of this until he himself 
indorses it? 

Ans. He has made it a non-transferable instrument, until such time 
as he indorses it. 

(f) To whom is this instrument made unavailable by this indorse- 
ment? 

Ans. To any person who might come into possession of it wrongfully. 

(g) Show these two indorsements. 
Ans. 

As Ray Krause & Co. indorsed it. As Meivitt Rathje changed it. 



Ray Krause & Co. 



Pay to the order of Merritt 
Rathje. 

Ray Krause & Co. 



Art. 266. — Waiver of Rights by Indorser. 

(a) Later, Merritt Rathje sold the paper to Leo Summers, who 
insisted upon Rathje's indorsement being so made that Rathje would 
not be able to escape liability in case of any failure to present the paper 
for payment at maturity, or in case of failure to give Rathje notice of 
non-payment. How does Summers want Rathje to indorse the note? 



86 



PRACTICAL LAW 



Ans. In full and with demand, protest and notice waived, 
(b) Show this indorsement as it should appear. 

Ans. 



Pay to the order of Merritt Rathje. 
Ray Krause & Co. 

Pay to the order of Leo Summers, de- 
mand, protest and notice waived. 

Merritt Rathje. 

Art. 267. — Indorsement Without Recourse. 

(a) Leo Summers then sold the note to L. Bere, who desires to escape 
all liabilities. How can he indorse the note to do this ? 

Ans. He can indorse the note in full, but qualifiedly (i. e. with re- 
course). 

(b) Show all indorsements to date, including this. 
Ans. 



Pay to the order of Merritt Rathje. 
Ray Krause & Co. ■ 
Pay to the order of Leo Summers, de- 
mand, protest and notice waived. 

Merritt Rathje. 
Pay to the order of L. Bere, without 
recourse on me. Leo Summers. 

(c) How does this form of indorsement affect Mr. Summers ? 

Ans. It frees him from any liability or obligation as an indorser 
upon the paper. 

(d) Mr. L. Bere wishes to transfer the note to Bernard Howe, trans- 
ferring title and guaranteeing payment. How shall he do this ? 

Show all indorsements to date. 
Ans. 



Pay to the order of Merritt Rathje. 
Ray Krause & Co. 

Pay to the order of Leo Summers, de- 
mand, protest and notice waived. 

Merritt Rathje. 

Pay to the order of L. Bere, without 
recourse on me. 

Leo Summers. 

Pay to the order of Bernard Howe, 
prompt payment at maturity guaranteed. 

L. Bere. 



QUIZ MANUAL 



87 



Art. 268. — Guaranty of Payment. 

How does this form of indorsement effect Mr. Bere? 

Ans. Under this indorsement and guarantee Mr. Bere would be 
liable to subsequent holders for payment of the note even though de- 
mand and notice were omitted, provided Mr. Bere suffered no damage 
by the omission, and provided no extension or other change of the 
terms of the note were made without his consent. 

Art. 269. — Restrictive Indorsement. 

The note being now almost due, Bernard Howe deposited it with 
the Chemical National Bank, New York, for collection, indorsing it 
restrictively. Show all indorsements to date. 

Ans. 



Pay to the order of Merritt Rathje. 

Ray Krause & Co. 

Pay to the order of Leo Summers, de- 
mand, protest and notice waived. 

Merritt Rathje. 

Pay to the order of L. Bere, without 
recourse on me. 

Leo Summers. 

Pay to the order of Bernard Howe, 
prompt payment at maturity guaranteed. 

L. Bere. 

Pay to the order of Chemical National 
Bank, New Y ork , for collection. 

Bernard Howe. 



Art. 270. — Dishonor and Notice of Dishonor. 

(a) The Chemical National Bank, of New York, presents the note 
for payment on the date of maturity, at the office of the Merchants 
Bank where it is made payable, and payment is refused. What is now 
necessary for the holder to do ? 

Ans. Send notices of dishonor. 

(b) To whom should notice be sent? 

Ans. To the maker and all indorsers, excepting such only as may 
have waived notice. 

(c) Has any party to the note under discussion waived notice, and 
if so, whom ? 

Ans. Merritt E. Rathje, the first indorsee and second indorser, 
waived notice. 



88 PRACTICAL LAW 

(d) To what other form of notice of dishonor is this notice similar? 
Ans. It is substantially the same form as notice of dishonor of a 

bill. 

(e) Is protest of a note proper and customary? 
Ans. It is, but not necessary. 

(f) What papers only is it absolutely necessary to protest? 

Ans. Foreign bills of exchange are the only instruments which 
absolutely require protest when dishonored. 

(g) Name all the parties to this note thus far, in the order in which 
they became such, and opposite the name of each tell what party he 
became. If, during the history of this note, any one's name figures as 
more than one party, give them all in logical order, also tell whether or 
not they are entitled to notice of dishonor. 

Ans. (1) R. Wilson, maker, indorser, not entitled to notice. 

(2) Henry Vogel, surety. 

(3) Ray Krause & Co., payee, indorsers. Entitled to notice 
as indorsers. 

(4) Merritt E. Rathje, indorsee, indorser. Notice waived, 
therefore not entitled to notice. 

(5) Leo Summers, indorsee indorser. Indorser without 
recourse, notice unnecessary. 

(6) L. Bere, indorsee, indorser, guarantor. Entitled to 
notice as indorser, but not as guarantor. 

(7) Bernard Howe, indorsee, indorser. Entitled to notice 
as indorser. 

(8) Chemical National Bank, indorsee by restricted indorse- 
ment. Notice not necessary. 

Art. 271.— Collection. 

(a) We will now suppose that Bernard Howe pays back to the 
Chemical National Bank the amount he has received from the bank 
upon the note, or that he permits the bank to charge the note against 
his account. What recourse will Bernard Howe have? 

Ans. He may now recover the amount from L. Bere, and L. Bere, 
in turn, will recover from Merritt E. Rathje. 

(b) How about Leo Summers, who transferred the note to L. Bere? 
Ans. Leo Summers, having indorsed without recourse, cannot be 

held. 

(c) Suppose, now, that Merritt E. Rathje finds Ray Krause & Co. 
insolvent, what will be Mr. Rathje's remedy? 

Ans. He must look to the maker, R. Wilson, and sue him, if neces- 
sary, for the amount, or, if the maker proves worthless, then sue the 
surety. 

(d) Upon investigation Mr. Rathje finds that the maker, R. Wilson, 



QUIZ MANUAL 89 

is worthless and that Henry Vogel, the surety, is responsible. Against 
whom should Mr. Rathje bring action? 
Ans. Against Mr. Vogel, surety. 

(e) Upon examining the note, Mr. Rathje finds that it reads, 
"Sixty days after date I promise to pay." What kind of note does this 
make it? 

Ans. This makes it a "joint and several" note. 

(f ) What is the significance of this ? 

Ans. It means the same as though it read "We, or either of us 
promise to pay." It is enforcible against both, or against either of the 
parties to it, as the holder chooses. 

(g) Naturally, what does Mr. Rathje do about it? 
Ans. Mr. Rathje sues the surety, Henry Vogel. 

(h) Mr. Vogel defends against the note on the ground that the 
goods for which the note was given, were inferior to the sample by which 
they were bought. At the trial Mr. Rathje shows that he acquired the 
note in due course. Under these conditions, will Mr. Vogel's defense 
win? 

Ans. No. Mr. Vogel's defense will be of no avail. 

(i) How, then, will Mr. Rathje's suit come out? 

Ans. He will recover judgment against Mr. Vogel, the surety, for 
the amount of the note and costs of suit. 

(j) What will then be Mr. Vogel's duty? 

Ans. Mr. Vogel must then pay the judgment, and may, in turn, 
sue R. Wilson, the real maker of the note. 

Art. 272.— Surety. 

(a) Although Mr. Vogel is a joint maker as to third parties, it must 
be remembered that, as between himself and R. Wilson, he is what i 

Ans. As between himself and R. Wilson, Mr. Vogel is only a surety. 

(b) Why is this true? 

Ans. Because he had no financial interest in the original proceeds 
of the note. 

(c) What right does this give him? 

Ans. It gives Mr. Vogel the right to recover judgment against 
R. Wilson for the whole amount of the note and accumulated costs. 

(d) Give an old saying concerning suretyship, centuries old. 
Ans. "He that is surety. . . . shall smart for it. " 



NEGOTIABLE INSTRUMENTS. 

Art. 273. — When an Instrument is Negotiable. 

(a) To be fully and perfectly negotiable, an instrument must con- 
form to how many requirements? 
Ans. Six. 



90 PRACTICAL LAW 

(b) Give them. 

Ans. (1) It must be in writing and signed by the maker or drawer, 
or by his lawfully authorized agent. 

(2) It must contain an unconditional promise or order to pay 
a certain sum of money. 

(3) It must be payable on demand or at a fixed or deter- 
minable future time. 

(4) It must be payable to order or to bearer. 

(5) If the instrument is a bill of exchange the person on whom 
it is drawn must be specified. 

(6) In some states (but not in those having the Negotiable 
Instruments Law) , an obligation, to be strictly negotiable, must be pay- 
able at some bank named in the instrument. 

(c) Does want of negotiability imply lack of legality or want of 
transferability? 

Ans. It does not. A bill or note, although payable in property, 
or otherwise lacking negotiability, is transferable, and, if a valid con- 
tract, is enforcible. 

(d) Does an instrument lacking negotiability pass like money? 
Ans. No, the purchaser of such an instrument does not, in general, 

take any better title to it than was possessed by his transferor. 

Art. 274. — Signing. 

(a) By whom must all negotiable instruments be signed? 

Ans. They must be signed by, or in behalf of, the person who be- 
comes primarily liable for payment. 

(b) What sort of signature will be sufficient ? 

Ans. A signature by initial, or by arbitrary marks, or by rubber 
stamp, will be sufficient if the intent of maker or drawer to create a valid 
instrument can be shown. 

(c) How may persons who cannot write sign ? 
Ans. They may sign by mark. 

(d) How is this usually done? 

his 

Ans. In the following form : John (X) Doe, the mark (X) being 

mark 
made by the person to be bound by the signature. 

Art. 275. — Payable in Money. 

(a) In what must an instrument be payable to be negotiable? 
Ans. Money. 

(b) Is a note payable in property negotiable ? 

Ans. It is not. For example, B. made a note in which he promised 
to pay C. $1,000.00 in cotton. The note was held non-negotiable. Auer- 
bach v. Pritchett, 58 Ala. m 451. 



QUIZ MANUAL 91 

Art. 276. — Variance Between Words and Figures. 

If the amount of the instrument written in figures differs from the 
amount written in words, which controls ? 

Ans. The amount written in words controls, but if there be no 
amount in words, the figures control. 

Art. 277.— Time of Payment. 

(a) What must an instrument provide to be negotiable? 
Ans. It must provide a time of maturity. 

(b) When is the date of maturity sufficiently certain ? 

(1) On demand. 

(2) Upon the death of a certain party. 

(3) On or before a certain date. 

Art. 278.— Words of Negotiability. 

(a) What words must an instrument contain to be negotiable? 
Ans. They must contain words of negotiability. In general these 

are "or order" or "or bearer. " 

(b) Is a note payable to a certain person "or his assigns" negotiable? 
Ans. It is not. 

(c) How about checks payable to "cash," or to "bills payable," 
or to "sundries?" 

Ans. They are held to be payable to bearer, and are negotiable. 

Art. 279. — Certainty as to Amount. 

(a) To. be negotiable the instrument must be a promise or order 
for the payment of what amount? 

Ans. It must be a promise or order to pay some certain, or definite 
amount. 

(b) Name five conditions regarding certainty of amount which, 
under the Negotiable Instruments Law, may enter into an instrument 
without rendering it non-negotiable. 

Ans. (1) The fact that it is payable with interest. 

(2) By stated installments. 

(3) By stated installments with a promise that upon default 
of payment of any installment, or interest, the whole shall become due. 

(4) With exchange. 

(5) With costs of collection or an attorney's fee, will not 
in most states, render the instrument non-negotiable. 

(c) Will any or all these conditions render an instrument non- 
negotiable in any of the states having the Negotiable Instruments Law? 

Ans. It will not, but the laws of other states are not in harmony 
on this point. 



92 PRACTICAL LAW 

Art. 280. — Additional Provisions. 

(a) How will the negotiability of an instrument be effected if the 
instrument contains a promise to do something in addition to making 
payment in money? 

Ans. Its negotiability will be thereby destroyed. 

(b) Name four additional clauses which, under the Negotiable 
Instruments Law, and in most states, do not impair the negotiability 
of an instrument. 

Ans. The negotiability of an instrument is not impaired by reason 
of the fact that the instrument contains a clause: 

(1) Authorizing the sale of collateral securities in case the 
instrument is not paid when due- 

(2) Authorizing confession of judgment against the maker in 
case of default. 

(3) Waiving the benefit of any law intended for the advantage 
or protection of the obligor. 

(4) Giving the holder an election to require something to be 
done in lieu of the payment of money. 

(c) Name five possible omissions and specifications in an instru- 
ment, either or all of which will not, necessarily, impair its negotiability. 

Ans. The negotiability of an instrument is not necessarily impaired 
by reason of the fact that: 

(1) The instrument is not dated. 

(2) Because it states, or fails to state, the consideration, or 
to state that it is given "for value received." 

(3) Because it fails to state the place where it is drawn, or 
the place where it is payable. 

(4) Because it bears a seal. 

(5) Because it specifies a particular kind of money in which 
payment is to be made. 

Art. 281. — Antedating and Postdating. 

(a) Is the negotiability of a note impaired by antedating or post- 
dating it ? 

Ans. It is not, provided this is not done with an illegal or fraudu- 
lent purpose. 

(b) When does a person to whom an instrument so dated is deliv- 
ered, acquire title? 

Ans. He acquires title from the date of delivery. 

Art. 282.— Filling up Blanks. 

(a) What does the Negotiable Instruments Law provide where an 
instrument is wanting in any material particular? 

Ans. It provides that the person in possession thereof has a prima 
facia authority to complete it by filling up the blanks. 



QUIZ MANUAL 93 

(b) How does it operate when a maker or drawer signs a note or 
bill in blank, in order that the paper may be converted into a negotiable 
instrument ? 

Ans. His act operates as a prima facie authority to the person to 
whom he delivers the paper to fill it up for any amount. 

(c) In order that an instrument, delivered in complete form, may 
be enforced, after completion, against any person who becomes a party 
to it before its completion, how and when must it be filled? 

Ans. It must be filled up strictly in accordance with the authority 
given, and within a reasonable time. 

(d) What will be the case if such an instrument, after completion, 
is negotiated to a person in due course? 

Ans. The instrument will be enforcible in his hands, regardless of 
the fact that it may have been filled up for a greater amount than was 
intended by the maker. 

(e) Give an illustration of this. 

Ans. If A. signed a blank negotiable note and delivered it to B. , 
with instruction to fill up the instrument for a sum not exceeding $500. 00; 
and if B. afterward wrongfully wrote his own name in the note as payee 
thereof, and inserted $5000. 00 as the amount of the obligation, and then 
negotiated it in due course to C. , A. would be bound to pay C. $5000. 00. 

(f) What will be the case when a maker of an instrument carelessly 
leaves space in a printed form whereby an alteration may be made with- 
out exciting the suspicions of a careful person? 

Ans. The maker will be liable upon the instrument to a holder in 
due course when the opportunity for alteration has been exercised. 

Art. 283. — Negotiation. 

(a) When is an instrument negotiated? 

Ans. When it is transferred from one person to another in such 
a manner as to confer ownership and possession upon the transferee. 

(b) What is necessary to transfer a note or a bill, payable to bearer ? 
Ans. It is transferred by merely delivering it to the transferee. 

(c) What is the effect when a bill or note made payable "to order" 
is indorsed without naming any transferee? 

Ans. After such indorsement, the instrument becomes payable 
to bearer. 

(d) Illustrate. 

Ans. If A. , being the payee in a bill or note payable to his order, 
indorsed the instrument by writing his name across the back of it, without 
naming any transferee, the instrument is transferable by mere delivery, 
until it is again indorsed, in full. 

Art. 284. — Parties. 

(a) What two classes may there be to a bill or note. 



94 PRACTICAL LAW 

Ans. The parties to a bill or note are either "Original" or "Subse- 
quent." 

(b) Who are the original parties to an instrument ? 

Ans. Those whose names appear upon it at the time of its inception, 
all others are subsequent parties. 

(c) Name the original parties to a bill. 
Ans. The drawer, drawee, and the payee. 

(d) Name the original parties to a note. 
Ans. They are the maker and the payee. 

(e) In states having the Negotiable Instruments Law, what term 
is applied to persons other than the payee, who write their names upon 
the back of the instrument before it has been originally issued ? 

Ans. They are called irregular indorsers. 

(f) What rights have they? 

Ans. They have the same rights as other indorsers. 

(g) What are such indorsers called in some other states ? 

Ans. In some states such indorsers are treated as joint makers, 
(h) In the latter case would they be entitled to notice of dishonor ? 
Ans. They would not. 

Art. 285. — Liabilities of Drawer. 

(a) What is the liability of the drawer of a bill ? 

Ans. The drawer of a bill is continuously liable to the holder for 
the amount, provided the payee, or other holder, uses due diligence in 
presenting the bill for acceptance and for payment, and, in the event of 
non-acceptance or non-payment, gives the drawer lawful notice of that 
fact. 

(b) In general, what is the effect of negligence in presentment for 
acceptance or in presentment for payment, or failure to give notice of 
non-acceptance or of non-payment. 

Ans. In general, negligence regarding any of these steps releases the 
drawer, unless he has waived these rights. 

(c) Give five possible conditions, under any one of which the drawer 
would remain liable whether proper presentment or notice had or had 
not been given. 

Ans. (1) Where one draws on a bank in which he has no funds. 

(2) Where he draws upon himself. 

(3) Where he draws upon a partnership in which he is a 
member. 

(4) Where he draws upon a fictitious person. 

(5) Where he draws upon a party incapacitated to contract. 

Art. 286 — Liability of Drawee. 

(a) When does a drawee's liability begin? 
Ans. When he accepts it. 

(b) What is his liability after acceptance? 



QUIZ MANUAL 95 

Ans. The same as that of the maker of a note. 

(c) Of what must the drawee be sure? 

Ans. The drawee must know the signature of his drawer. 

(d) Why is this necessary? 

Ans. Because if the drawee accepts a bill to which the drawer's 
signature has been forged, he cannot thereafter repudiate the bill, or 
recover from a holder in due course, money paid upon it. 

Art. 287. — Liability of Maker and Acceptor. 

(a) What is the difference between the liability of the maker of a 
note and that of the acceptor of a bill ? 

Ans. None. Their liability is identical. 

(b) What demand or notice is necessary to fix this liability? 

Ans. Neither demand nor notice is necessary. It arises by absolute 
contract. 

Art. 288. — Liability of Payee. 

(a) When does a payee's liability begin? 

Ans. The payee incurs no liability upon a bill or note until he 
negotiates it. 

(b) Suppose he indorses it; what of his liability? 

Ans. His liability straightway becomes the same as that of any 
indorser. 

(c) What is the payee's liability in case the paper is payable to bearer 
and he transfers it by delivery only? 

Ans. The same as that of any other holder who transfers by delivery. 

Art. 289. — Liability of Holders who Transfer by Delivery. 

(a) Do holders who transfer by delivery have any liability ? 

Ans. One who transfers by delivery a bill or note payable to bearer, 
is not without liability. 

(b; Certain warranties arise from the mere fact of delivery. Name 
four of them. 

Ans. (1) That the instrument is genuine, and in all respects what 
it purports to be. 

(2) That he has good title to it. 

(3) That all prior parties had capacity to contract. 

(4) That he has no knowledge of any fact that would impair 
the validity of the instrument, or make it valueless. 

Art. 290. — Liability of General Indorsers. 

(a) To whom and to what extent does every indorser who does not 
qualify his indorsement, warrant the instrument? 

Ans. (1) That the instrument is genuine and in all respects what 
it purports to be. 

(2) That he hns good title to it. 



9 6 



PRACTICAL LAW 



(3) That all prior parties had capacity to contract. 

(4) That the instrument is, at the time of his indorsement, 
valid and subsisting. 

(5) He further engages that, on due presentment, it shall be 
accepted or paid, or both, according to its requirements, and that, if it 
is dishonored, and the necessary proceedings on dishonor are duly taken, 
he will pay the amount of the instrument to the holder, or to any subse- 
quent indorser who may be compelled to pay it. 

Art. 291. — Forms of Indorsement. 

(a) Name five different forms of indorsement. 
Ans. (1) Indorsement in blank. 

(2) Indorsement in full, or special indorsement. 

(3) Restrictive indorsement. 

(4) Qualified indorsement. 

(5) Conditional indorsement. 

(b) Give an example of each. 
Ans. 

In Blank. 



Wm. W. Wightman. 



In Full. 



Pay to the order of Edwin C. Jones. 
Wm. W. Wightman. 

Restricted. 



Pay to the order of Edwin E. Jones only. 
Wm. W. Wightman. 

Qualified. 



Pay to the order of E. E. Jones with- 
out recourse on me. 

Wm. W. Wightman. 

Conditional. 



Pay to the order of Edwin E. Jones 
upon the completion of certain repairs on 
the Merchants Bank as per contract. 

Wm. W. Wightman. 



QUIZ MANUAL 97 

Art. 292. — Liability of one who Indorses Without Recourse. 

Has an indorser "without recourse" any liability, and if so, what? 
Ans. Same as one who transfers paper by delivery, no more. 

Art. 293.— Dishonor. 

(a) A bill is dishonored by what? 
Ans. By non-acceptance. 

(b) Give two ways in which this may be brought about. 
Ans. (1) When acceptance cannot be obtained. 

(2) When presentment for acceptance is excused, and bill 
is overdue. 

Art. 294. — When Presentment for Acceptance Must be Made. 

When must presentment for acceptance be made? 

Ans. (1) When the bill is payable after sight, or in any other case 
where presentment for acceptance is necessary to fix the maturity of 
the instrument. 

(2) Where the bill expressly stipulates that it shall be presented 
for acceptance. 

(3) Where the bill is drawn payable elsewhere than at the 
residence or place of business of the drawee. 

Art. 295. — When Presentment for Acceptance is Excused. 

When is presentment for acceptance excused, and a bill treated 
as dishonored by non-acceptance? 

Ans. (1) Where the drawee is dead, has absconded, is a fictitious 
person, or is without capacity to contract. 

(2) Where, although presentment has been irregular, accept- 
ance has been refused for some reason other than this irregularity. 

(3) When the holder of a bill drawn payable elsewhere than at 
the residence or place of business of the drawee, has not reasonable time 
in which to make presentment for acceptance before the bill falls due. 

Art. 296. — How Presentment for Acceptance is Made. 

How must presentment for acceptance be made? 
Ans. (1) By, or on behalf of, the holder. 

(2) At a reasonable hour, on a business day. 

(3) Before the bill is overdue. 

(4) To the drawee, or to some person authorized to accept 
or refuse acceptance on his behalf. 

(5) When drawn upon two or more persons, not partners, 
presentment must be made to each unless one has authority to accept 
for all. 



98 PRACTICAL LAW 

Art. 297. — Acceptance. 

Illustrate an acceptance. 
Ans. 

November 30, IQ12. 

Accepted. 

Geo. Noble. 

Art. 298. — Time for Acceptance. 

(a) How long may the drawee have in which to decide whether or 
not to accept a bill? 

Ans. Twenty-four hours. 

(b) If the drawee takes this full time for deciding, when should the 
acceptance be dated? 

Ans. As of the day of presentment. 

(c) If the drawee destroys the bill or refuses to return it within the 
time limit, what is the result? 

Ans. He will be deemed to have accepted it. 

Art. 299, 300, 301.— Kinds of Acceptance. 

(a) Name and define each of two kinds of acceptance. 
Ans. (1) General. Without qualification. 

(2) Qualified. Varies from the intent of the bill as drawn. 

(b) Give the different ways in which an acceptance may be quali- 
fied. 

Ans. (1) When payment is contingent upon fulfillment of a con- 
dition. 

(2) When acceptance is for only part of the amount of the 
bill. 

(3) When an acceptance limits payment to one place only. 

(4) When time of payment is qualified. 

(5) When less than all drawees accept. 

Art. 302. — Acceptance for Honor. 

(a) What is the object of an acceptance for honor ? 
Ans. To lend acceptor's credit to the bill. 

(b) What is the liability of an acceptor for honor? 

Ans. He is liable to the holder and all parties subsequent to the 
one for whose benefit he accepts. 

(e) Illustrate a form of an acceptance for honor. 
Ans. Accepted supra protest for honor of J. D. Lucas. 

Wm. W. Wightman. 

Art. 303. — Necessity of Presentment for Payment. 

(a) What is the necessity of presentment for payment to maker of 
note or acceptor of bill? 



QUIZ MANUAL 99 

Ans. (1) Without presentment at proper time and place further 
interest or cost of suit cannot be placed. 

(2) Damages resulting from failure to present at proper time 
and place may be used by the maker or drawee as an off-set against the 
amount due on the instrument. 

(b) What is the necessity of presentment for payment to indorsers 
of a note or bill? 

Ans. It is necessary to present a note or bill at proper time and place 
in order to bind its indorsers. Failure to present, discharges indorsers 
from all liabilities except when the instrument is drawn for the accommo- 
dation of the indorser. 

(c) When is presentment for payment excused? 
Ans. (1) After the exercise of reasonable diligence. 

(2) When the drawee is a fictitious person. 

(3) When .presentment has been expressly or impliedly received. 

Art. 304.— Waiver. 

(a) Who is bound by a written or printed waiver above the sig- 
nature of an indorser? 

Ans. That indorser only. 

(b) Who is bound by a written or printed waiver embodied in the 
note or bill itself? 

Ans. All parties to the instrument. 

(c) Under the Negotiable Instruments Law what is the effect of the 
same words written or printed above the signature of the indorser of a 
note or bill? 

Ans. Releases that indorser only. 

(d) Under the Negotiable Instruments Law what is the effect of the 
words "Protest Waived," when written or printed on the face of a 
note or bill? 

Ans. Releases all indorsers whose names appear on the instrument. 

(e) In states in which the Negotiable Instruments Law is in force, 
how many formalities are waived by the words "Protest Waived" when 
written or printed on the face of a note or bill? 

Ans. Six. 

(b) Name them. 

Ans. (a) Waive presentment for acceptance (if bill) ; 

(b) Waive protest for non-exceptance (if bill) ; 

(c) Waive notice of dishonor by non-acceptance (if bill) ; 

(d) Waive presentment for payment (as to all negotiable 
instruments) ; 

(e) Waive protest for non-payment (if a foreign bill) ; 

(f ) Waive notice of dishonor by non-payment (as to all nego- 
tiable instruments). 



IOO PRACTICAL LAW 

Art. 308.— Protest. 

(a) When is an instrument protested? 

Ans. When dishonored by non-acceptance or non-payment. 

(b) What instrument must be protested under these conditions 
to protect holders interests? Why? 

Ans. Foreign bills of exchange. To hold drawers and indorsers. 

(c) May notes and Inland or Domestic bills be protested for similar 
cause? 

Ans. Yes. 

(d) Will failure to protest a note or Inland bill for non-acceptance 
or non-payment relieve the drawers or indorsers? 

Ans. No. A matter of form and convenience only. 

(e) Are notice of dishonor and protest for dishonor one and the same 
process ? 

Ans. No. Separate. 

(f) What is a protest (or certificate "of protest as it is often called) ? 
Ans. A written statement made by a Notary Public under his seal 

of office and attached to the bill or note for the purpose of furnishing 
every subsequent holder a means of readily proving that the instrument 
has been presented and dishonored. 

(g) By whom may protest be made? 

Ans. By any respectable resident of the place where instrument 
is dishonored, in presence of two or more credible witnesses. 

Art. 309. — Contents of Certificate of Protest. 

(a) What must be set forth in a certificate of protest? 
Ans. (1) The time and place of presentment. 

(2) The fact that presentment was made and the manner 
thereof. 

(3) The cause or reason for protesting the instrument. 

(4) The demand made and the answer given, if any, or the fact 
that the drawer or acceptor could not be found. 

(b) When should protest be made ? 
Ans. On the day of dishonor. 

Art. 310. — Summary of Omissions. 

(c) Give a summary of omissions which discharge drawers and 
indorsers. 

Ans. When the formality is not waived or otherwise excused, in- 
dorsers of a Foreign Bill are discharged in six ways as follows : 

(1) By failure to present the instrument for acceptance, if accept- 
ance is required. 

(2) By failure to protest for non-acceptance when required. 

(3) By failure to give notice of dishonor by non-acceptance when 
required. 



QUIZ MANUAL IOI 

(4) By failure to make presentment for payment at maturity. 

(5) By failure to make protest for dishonor by non-payment. 

(6) By failure to give notice of dishonor by non-payment. 

(d) When the formality is not waived or otherwise excused, drawers 
and indorsers of an Inland bill are discharged in how many ways ? 

Ans. (1) By failure to present the instrument for acceptance when 
required. 

(2) By failure to give notice of dishonor by non-acceptance 
when required. 

(3) By failure to make presentment for payment at maturity. 

(4) By failure to give notice of dishonor by non-payment at 
maturity. 

(e) When formality is not waived or otherwise excused, indorsers 
of a note are discharged in how many ways? 

Ans. (1) By failure to make presentment for payment at maturity 
(2) By failure to give notice of dishonor by non-payment. 

Art. 311. — Sureties. 

(a) By what term is one known who signs his name upon the face of 
a note, having no pecuniary interest? 

Ans. Surety. 

(b) What relation does he bear to third parties ? 

Ans. He is joint maker. He is not released by failure to present 
for payment ; nor is he entitled to notice of non-payment. 

Art. 312. — Guarantors. 

(a) Illustrate a guaranty. 

Ans. For value received I hereby guarantee payment at maturity of 
the within obligation. John J. Eccles 

(b) Is a guarantor entitled to notice of dishonor in the sense that an 
indorseris? 

Ans. No. 

(c) Will want of notice of dishonor, standing alone, discharge him? 
Ans. No. 

(d) What will be the effect if the guarantor is damaged by want of 
notice? 

Ans He will be discharged to the extent of the actual damage sus- 
tained thereby. 

(e) How is the guarantor effected by an extension of the obligation 
or other change therein, made without the guarantor's consent? 

Ans. It discharges him from further liability. 

Art. 313. — Material Alteration. 

(a) In states in which the Negotiable Instruments Law is not in 
force, what is the effect of a materially altered instrument in the hands 
of a holder in due course? 



102 PRACTICAL LAW 

Ans. It is held void, and treated as a forgery, 
(b) In the preceding case, what right has a holder in due course, 
provided he is not a party to the alteration? 

Ans. He may enforce the instrument according to its original terms. 

Art. 314. — Forgery of Signature. 

What is the law regarding the value of an instrument bearing a 
forged signature? 

Ans It is void in the hands of all holders. 

Art. 315. — Usury. 

(a) What is usury? 
Ans. Unlawful interest. 

(b) How are the penalties therefor determined? 
Ans. By reference to the state statutes. 

Art. 316. — Bonuses. 

(a) Define bonus. 

Ans A bonus is an extra sum of money received by a lender, over 
and above the interest on the loan. 

(b) How are bonuses which, if added to the regular interest re- 
served make a total in excess of the legal rate, treated by some courts? 

Ans. As usury. 

(c) May such, bonus be legally paid by a borrower to his own agent 
for procuring the loan? 

Ans. It may. 

Art. 317. — Payment of Interest in Advance. 

Is it considered usury to collect the highest legal rate at the time 
of making the loan? That is, in advance? 
Ans. No. 



GENERAL EXAMINATION NO. 4. 

Embracing the subject of Banking, treated in Articles 226 to 317 
inclusive, appearing in Practical Law. Answers to the following questions 
should be neatly written and handed to the teacher. Number each 
answer to correspond with the question. Write your name and the 
current date on each sheet. Mark your paper Examination No. 4. 
Write only on one side of the sheet, and avoid erasures, blots, check 
marks, or other disfigurements. 

1. How many kinds of banks? Name and define each. 

2. Tell when, under varying conditions, a check should be presented 
for payment. 

3. What is a depositor's duty regarding returned checks. 

4. Give briefly, the duties of the following bank officers : President, 



QUIZ MANUAL 103 

Vice-President, Cashier, Teller. From whom do all these receive their 
authority? 

5. Who are the stockholders of the bank? What authority have 
they? 

6. Draw up a draft corresponding with the following memorandum: 
H. Doane & Co., of Chicago, having sold goods int he amount of $5000. 00 
George Lucore & Co., upon the latters' agreement to accept their draft 
drawn payable ten days after sight, the following instrument: 

(a) Name and define the parties to the preceding bill of ex- 
change. 

(b) On a form purporting to be the back of the preceding 
bill of exchange, show, in proper form, an indorsement in full to the 
Chicago City Bank, Chicago, 111. 

(c) Next show indorsement by the Chicago City Bank to the 
Merchants Bank, Englewood, 111., for collection. 

(d) Upon presentment for payment by the holder of this 
instrument, the bill was dishonored. Explain fully what this means. 
Who is the present holder ? 

7. (a) Charles W. Nelson, Chicago, bought of James Russo, New 
York, goods to the value of $3000. 00, for which the vendee made payment 
by delivering to the vendor a 7%, 30-day negotiable note, payable at 
the Chemical Nat'l Bank, New York, and secured by Peter J. Davis, 
as surety. 

(b) Show the above indorsement upon a form representing the 
back of the note. 

(c) Write out this note complete. Upon receiving this note 
the vendor indorsed it in blank. Show indorsement. 

The note, thus indorsed, passed into circulation and was transferred 
without further indorsement, through the hands of several parties 
until it finally came into the possession of Andrew Miller. Andrew Mil- 
ler, being a prudent and thoughtful man, and knowing that the above 
note was liable to be cashed by anyone, in case it should become lost, 
wrote in the necessary wording to make the blank indorsement an 
indorsement in full. 

(d) Show on the back of the note the indorsement as Mr. Miller 
caused it to read. Mr. Miller then indorsed the note to Frank Jezek, 
waiving protest and notice. 

(e) Show this indorsement 

(f) Had Mr Miller a right to do this? 

(g) Why. 

(h) Was it any advantage to Mr. Miller, and, if so, what ? 
(i) Was it any advantage to Mr. Jezek, and, if so, what? 
Mr. Jezek then indorsed the note to Joseph May in such a way as 
to assume the least possible liability. 

(j) What kind of indorsement was this ? 

(k) Show on the back of the note how it looked. 



104 PRACTICAL LAW 

Mr. May now indorsed this same note to Niels Madsen in a manner 
whereby he (Mr. May), agrees to warrant payment of same. 
(1) What sort of indorsement is this called ? 
(m) Illustrate it on the back of the note. 

8. How many original parties to this note ? Name them. 

9. How many subsequent parties to this note? Name them. 

10. When is an instrument negotiable? 

11. When is an instrument said to be negotiated? 

12. Name seven points of liability of the drawer of a bill of exchange 
or draft. 

13. Name two points of liability of the drawee of a bill of exchange 
or draft. 

14. Give the warrants made by a general indorser. 

15. Name five different forms of indorsement. 

16. To whom, when, where and how must presentment for accept- 
ance be made? 

17. Illustrate the form of an acceptance for honor. 

18. Give a summary of omissions which discharge drawers and 
indorsers. 

19. What must be set forth in a certificate of protest? 

20. By whom may protest be made ? 

21. In states in which the Negotiable Instruments Law is not in 
force, what is the effect of a materially altered instrument in the hands 
of a holder in due course? 

22. What is the law regarding the value of an instrument bearing 
a forged signature ? 

23. (a) What is usury? 

(b) How are the penalties therefor determined? 
24 (a) Define "Bonus." 

(b) Is it considered usury to collect the highest legal rate of 
interest at the time of making the loan; that is, in advance? 



LOANS, CREDITS AND COLLECTIONS. 
Art. 318. — Loans. 

(a) Give two ways of increasing the capital of a business firm. 
Ans. (1) By selling an interest in the business. 

(2) By negotiating a loan. 

(b) Which is usually the preferable way? 
Ans. By negotiating a loan. 

(c) What are the two most important points to be considered by 
the borrower, in negotiating a loan ? 

Ans. (1) The lowest possible rate of interest. 

(2) Adequate time in which to make payment. 



QUIZ MANUAL 10$ 

(d) What is the lender's chief care ? 
Ans. (1) Sufficient security. 

(2) Adequate rate of interest. 

Art. 319.— Security. 

Name several kinds of securities. 

Ans. (1) Personal undertakings, such as, suretyships, indorsements, 
indemnity bonds, guarantees. 

(2) They may be of the nature of real property or persoi al 
property; both mortgaged or pledged to secure repayment. 

Art. 320.— Suretyship. 

(a) What is meant by suretyship? 

Ans. It is an undertaking to answer for the debt or default of another. 

(b) How fully is the surety bound? 
Ans. As fully as the principal promisor. 

(c) If the surety has to pay, what recourse has he? 

Ans. He has a right to full reimbursement from his principal. 

(d) What is the result if the principal proves worthless ? 

Ans. The surety is without remedy and must bear the whole loss. 

(e) From the foregoing questions do you infer that it is good business 
policy to act as a surety? 

Ans. Positively not. 

(f) Suppose the principal and the surety both prove worthless, 
what is the result? 

Ans. The loss will fall upon the lender. 

Art. 321. — Indorsement. 

(a) In case of several indorsers, of whom does each indorser have 
the right to full reimbursement? 

Ans. Against principal and each preceding indorser. 

(b) What are joint indorsers ? 

Ans. Several indorsers agreeing to share the responsibility of surety- 
ship, proportionally. 

(c) As among themselves can they enforce this sharing of respon- 
sibility ? 

Ans. Yes. 

(d) How as to third parties? 

Ans. Each indorser is liable for the entire debt. 

Art. 322. — Indemnity Bonds. 

Explain the difference between indemnity bonds and money bonds. 

Ans. Indemnity bonds .express a suretyship for money or for any 
other obligation. Money bonds are generally an unconditional promise 
to pay money. 



Io6 PRACTICAL LAW 

Art. 323. — Guaranties. 

(a) What is a guaranty? 

Arcs. A collateral undertaking to pay the debt of another in case he 
does not paj 7 it. 

(b) How must it be made to be valid? 

Ans. It must be in writing and signed by the guarantor. 

(c) Is any special form necessary? 

Ans. No. A letter or telegram would be sufficient. 

(d) In case the guaranty is made for the purpose of inducing credit, 
is the credit sufficient consideration ? 

Ans. It is. 

(e) What is the case if it is given after credit has been granted? 
Ans. There must then be a distinct consideration given to support it. 

(f) Name some things that may constitute such consideration. 
Ans. (1) The renewal of a note. 

(2) An extension of time. 

(3) A forbearance on the part of the promisor. 

(g) What is the guarantor entitled to in case he pays the obligation ? 
Ans. He is entitled to have turned over to him all collaterals or 

other securities. 

(h) What will be the result if any one of these securities are released? 

Ans. The guarantor is thereby discharged. 

(i) When a guarantor has paid the guaranteed obligation, what 
recourse may he have? 

Ans. He may recover pro rata from his joint guarantors, if any, or 
the total from the principal debtor. 

Art. 324. — Mortgages. 

(a) What is a mortgage? 

Ans. A mortgage is a legal conveyance of property as collateral to 
secure the payment of a debt. 

(b) Name the parties to a mortgage. 
Ans. Mortgagor and mortgagee. 

(c) Name three general classes of mortgages. 
Ans. (1) Real estate mortgages. 

(2) Chattel mortgages. 

(3) Dual mortgages. 

(d) Define each. 

Ans. (1) Mortages of real estate are those which create a lien upon 
|and. 

(2) Chattel mortgages are those which create liens on personal 
property. 

(3) A dual mortgage constitutes a lien on both real and per- 
sonal property. 



QUIZ MANUAL I07 

Art. 325. — Real Estate Mortgages. 

(a) What should always be done as soon as you receive a mortgage? 
Ans. Have it acknowledged and recorded. 

(b) Suppose you receive a mortgage which you know at the time to 
be a second mortgage, but you have filed your second mortgage, while 
the first mortgage, issued at a prior date, has never been filed. Will you 
have a prior right? 

Ans. No. "When the reason fails the rule fails. " 

(c) Can creditors whose claims accrued before the giving of an un- 
filed or unrecorded chattel mortgage complain that the instrument was 
kept from the records? 

Ans. No. They have not heen injured thereby. 

Art. 326. — Form of Real Estate Mortgage. 

Are all real estate mortgage blanks of the same form? 
Ans. No, they vary in different jurisdictions. 
(See sample form, page 157.) 

Art. 327. — Chattel Mortgages. 

Need chattel mortgages be filed or recorded when the mortgaged 
chattels are immediately delivered to the mortgagee? 
Ans. No, nor even reduced to writing. 

Art. 328. — Insecurity Clause. 

(a) What is provided in the insecurity clause? 

Ans. That if at any time the m ortgagee believes that the mortgage 
debt is insecured, he may immediately take possession of the mortgaged 
property. 

(b) Considered from the mortgagee's standpoint, what is a better 
provision that could be made in the mortgage than merely the right to 
take possession ? 

Ans. That the mortgagee may at once proceed to foreclose upon and 
sell the mortgaged property, thus saving storage charges, avoiding de- 
preciation, etc. 

Art. 329.— Permission to Sell. 

How should a mortgage be drawn in case of a going concern? 
Ans. Covering all goods added to stock from time to time, with per- 
mission to sell, stock at no time to be reduced below a certain value. 

Art. 330.— The Mortgage Note. 

(a) By what is a mortgage usually accompanied ? 
Ans. By a note or bond. 

(b) Why? 

Ans. The mortgage is merely collateral security. 



108 PRACTICAL LAW 

(c) In case of suit, against what may action be taken? 
Ans. Against the note or bond; the mortgage may or may not be 

referred to. 

(d) How should a mortgage-note or bond be identified? 

Ans. With the mortgage, by writing on the note: "This note is se- 
cured by a real estate, or chattel (as the case may be) mortgage of like 
amount and date. " 

Art. 331. — Description of Mortgaged Property. 

(a) How should mortgaged property be described ? 

Ans. So that a stranger could identify it without calling in outside 
aid. 

(b) How should real estate be described? 
Ans. As in the deed. 

(c) How should chattels be described ? 

Ans. By kind, quantity, quality, and individual peculiarities and 
special marks. 

Art. 332. — Foreclosure. 

(a) Define foreclosure. 

Ans. It is taking proceedings to bar all further rights of the mortgagor 
in the mortgaged property. 

(b) Are court proceedings always necessary to foreclosure? 
Ans. No. 

(c) How do the statutes of some states provide that this may be 
done ? 

Ans. By merely advertising for a given time, then selling to the 
highest bidder. 

(d) Does this apply to both real estate and chattel mortgages ? 
Ans. Yes, in some states, and to most chattel mortgages in most 

states. 

Art. 333. — Sale of Mortgaged Property. 

What recourse has the mortgagor, in some cases, where the mortgagee 
has not taken the utmost care to sell the mortgaged property to the 
highest bidder? 

Ans. He may have the sale set aside. 

Art. 334. — Deficit and Surplus. 

(a) In case the mortgaged property sells at forced sale for less than 
the amount of the mortgage, what recourse has the mortgagee? 

Ans. He has an action at law against the mortgagor for the deficit. 

(b) How about it in case the mortgaged property sells for more than 
the face of the mortgage? 

Ans. The surplus will go to the mortgagor, or to those to whom 
his interests have been transferred. 



QUIZ MANUAL I09 

Art. 335. — Rights of Purchaser. 

What can you say as to the rights of the purchaser of a mortgage ? 

Ans. He is substituted to such rights as the mortgagor had in the 
property at the time the mortgage was given and to all after acquired 
rights covered by the mortgage. 

Art. 336. — Redemption. 

(a) What is meant by the right of redemption ? 

Ans. It is the right to pay off the mortgage debt, together with all 
charges, within a certain time, allotted by law, after the mortgage has 
been foreclosed. 

(b) May this right be assigned? 
Ans. It may. 

Art. 337. — Subrogation. 

(a) What is meant by the right of subrogation? 

Ans. It is the right which belongs to the holder of a subsequent 
lien by mortgage, or otherwise, to pay off a prior mortgage, and receive 
an assignment thereof. 

(b) What is the object of conferring this right upon subsequent 
lien holders? 

Ans. To enable them to protect themselves against loss. 

(c) What effect upon subsequent liens has the sale of a prior lien? 
Ans. It cuts off all subsequent liens. 

Art. 338. — Dual Mortgages. 

When a mortgage is dual^in its nature, what provisions of law 
should be observed? 

Ans. Those relating to both real estate and chattel mortgages. 

Art. 339. — Deeds Operating as Mortgages. 

(a) When does an absolute deed operate as a mortgage? 

Ans. When given as security for the performance of an obligation. 

(b) What must be done in such a case before the title will vest in 
the grantee? 

Ans. The deed must be foreclosed the same as a mortgage. 

(c) Has the grantor any right of redemption ? 
Ans. Yes, just as though it were a mortgage. 

(d) How is it redeemed? 

Ans. In the same manner as if it were in the form of a mortgage. 
(By duly advertising, then selling at public sale to highest bidder.) 

Art. 340. — Deed with Contract to Recovery. 

(a) In case an unconditional purchase and conveyance of property is 
made, by giving the grantor the privilege of repurchasing within a cer- 



IIO PRACTICAL LAW 

tain time at a fixed price, will the deed be construed as a mortgage? 
Ans. No. 

(b) What, in effect, has the grantee said to the grantor? 

Ans. "I will not make you a loan upon your property, but I will 
purchase it outright. I will then give you an option for its repurchase . 
If you do not exercise the option, the property will simply remain mine. " 

(c) How could the grantee properly explain to the grantor, the ad- 
vantage of the procedure over loaning and taking mortgage? 

Ans. "The same amount of money that would enable you to repay a 
loan will enable you to exercise the option for repurchase. It is no 
hardship to you, but it may save me the cost and delay incident to 
foreclosure of a mortgage. " 

Art. 341. — Bill of Sale Given as Security. 

(a) How is a bill of sale considered if given as security for the per- 
formance of an obligation? 

Ans. It will be construed as a mere chattel mortgage. 

(b) In such a case what is necessary to vest complete title in the 
vendee? 

Ans. Foreclosure. 

(c) Will an absolute, unconditional sale of this bill of sale followed 
by an option for repurchase act as in the case of a deed ? 

Ans. It will. 

(d) How then, in such a case, is this bill of sale considered? 
Ans. Not as a chattel mortgage; no foreclosure necessary. 

(e) What is the chief object of a bill of sale? 

Ans. To show that the holder is an innocent purchaser. 

Art. 342. — Assignment of Mortgage. 

(a) What is the effect of assigning a mortgage ? 

Ans. The assignee is substitued thereby to all the rights of the 
assignor. 

(b) Does the assignment of a mortgage ever carry with it the title 
to any other instrument? 

Ans. It carries with it the title to a note, or other instrument, se- 
cured by it. 

(c) Does the assignment of a note carry with it ipso facto the title 
to the mortgage? 

Ans. It does not. 

Art. 343.— Pledges. 

(a) What is a pledge as here considered? 

Ans. A pledge is a delivery of personal property to be held as se- 
curity for the performance of an obligation. 

(b) What are the parties to a pledge called? 



QUIZ MANUAL III 

Ans. The party pledging is the pledgor, the one to whom pledge is 
made is the pledgee. 

(c) What kind of property may be pledged ? 

Ans. Any personal property; such as, goods, chattels, money, 
promissory notes, patent rights, copyrights, policies of insurance, and 
money bonds. 

(d) What, then, is the pledgee's best protection? 

Ans. Investigation; he must ascertain the value and condition 
of the pledged stock at his own peril. 

Art. 344. — Pledges of Corporate Stock. 

(a) When corporate stock is offered as a pledge, of what should 
the pledgee assure himself? 

Ans. (1) That the certificate is genuine. 

(2) That the corporation by w T hich it is issued has no existing 
lien by law upon the shares which it represents. 

(b) If there is any doubt upon any of these points from whom 
should information regarding them be secured? 

Ans. From disinterested officers of the issuing corporation. 

(c) Are spurious certificates of stock less common than other for- 
geries ? %. 

Ans. No. They are quite common. 

(d) How does a debt of a corporation effect the certificates of a 
stockholder ? 

Ans. It gives the corporation a lien upon the debtor's certificates 
of stock, which is paramount to the claim of any pledgee who takes the 
stock after corporate lien attaches. 

(e) What is sometimes deemed prudent in case the pledged prop- 
erty is of great value ? 

Ans. To apply to a proper court for a decree of foreclosure and 
order of sale. 

(f ) Is this often done? 

Ans. Not often. 

(g) Why? 

Ans. Because it involves considerable delay and expense. 

(h) How much of pledged property can be sold? 

Ans. Only so much as will pay the debt. 

(i) Suppose the property is indivisible then how much may be sold ? 

Ans. The entire property. 

(j) Supposing the pledged property sells for more than enough to 
satisfy the debt, what is done with the surplus ? 

Ans. The surplus proceeds of the sale, if any, after paying the 
debt and all interest and costs, must be at once delivered to the pledgor or 
his assignee. 



112 PRACTICAL LAW 

Art. 345. — Foreclosure of Pledges. 

(a) What resort has the pledgee in case the pledgor fails to perform 
the obligation secured by the pledge? 

Ans. It is both his privilege and duty, after demanding payment, 
to proceed to forclose the pledge. 

(b) Give briefly the process of foreclosure. 

Ans. (1) Pledgee should give pledgor notice of time and place of 
sale of the property pledged. 

(2) Pledgee should advertise the foreclosure for a reasonable 
time. 

(3) Pledgee should sell the pledged property at public sale( as 
advertised) to the highest bidder. 

Art. 346. — Liens. 

(a) What is a lien? 

Ans. A lien is a claim and right of possession which one has upon 
the property of another as security for some debt or charge. 

(b) In how many ways may liens be created? 
Ans. Two. 

(c) Name them. 
Ans. (1) By contract. 

(2) By law. 

(d) Give illustration of each. 

Ans. Mortgages and pledges are liens created by contract. Some 
of these created by operation of law are: Liens, attorneys' liens, vendors' 
liens, workmen's liens, carriers' liens, inn-keepers' liens, attachment 
liens, and judgment or execution liens. 

Art. 347. — Vendors' Liens. 

(a) How does a vendor's lien operate? 

Ans. A vendor of personal property has a lien thereupon for the 
purchase price so long as he retains possession. 

(b) Illustrate. 

Ans. If goods have been sold by a merchant and set aside for 
the customer, the customer cannot lawfully take them away until the 
purchase price is paid. 

(c) What is the case if the merchant voluntarily gives possession? 
Ans. He thereby waives his lien 

(d) What legal aid are vendors of building material usually given? 
Ans. They are usually given a lien by statute upon materials used 

in making improvements upon land. 

(e) How are they enforced? 

Ans. By selling, in due course of law, the debtor's interest in the 
land. 

(f ) What are such liens inferior to? 



QUIZ MANUAL 113 

Ans. To recorded prior mortgages upon the real estate. 

(g) What then, should the vendor of building materials investigate 
before selling? 

Ans. The title to the land upon which the material is to be placed in 
buildings. 

(h) Why? 

Ans. That he may know the extent of his security. 

Art. 348. — Workmen's Liens. 

(a) What is meant by a workman's lien ? 

Ans. It is the claim a workman has upon any property as security 
for services performed thereon. 

(b) Give an illustration. 

Ans. A blacksmith who shoes a horse has a lien upon the horse, in 
case of refusal to pay. 

(c) What will be the effect if the blacksmith permits the owner to 
take his horse away? 

Ans. The blacksmith has absolutely waived his lien by the surrender 
of the horse. 

(d) Suppose the lien-holder is dispossessed by stealth or force, may 
he retake the property? 

Ans. He may, but he cannot recover it from an innocent purchaser 
who is a holder in due course, and to whom the obligee has sold it. 

(e) Does a workman's hen ever attach land? 

Ans. Workmen who construct permanent improvements upon 
real estate are usually permitted by statute to acquire a hen upon the 
land for the value of their services. 

Art. 349. — Liens of Carriers and Others. 

(a) What may a carrier acquire a hen upon? 
Ans. Upon the goods carried. 

(b) Upon what may an innkeeper acquire a hen for the value of 
entertainment supplied ? 

Ans. Upon the baggage or other goods of his guests. 

(c) Upon what may a liveryman acquire a lien? 
Ans. Upon the animals left with him for care and keep. 

(d) Upon what may an attorney acquire a lien ? 

Ans. Upon the papers of his client and upon the judgment or decree 
rendered until payment is made for his services. 

(e) In any and all of these previously mentioned cases, what is the 
effect of surrendering the property? 

Ans. In every case it terminates the hen. 

Art. 350. — Liens by Attachment. 

(a) Name three provisions for acquiring a lien by attachment. 



114 PRACTICAL LAW 

Ans. A creditor whose claim is due may speedily acquire a lien upon 
any property, real or personal, not exempt from execution, belonging 
to his debtor, under the following provisions, to-wit: 

(1) Is about to move his property from the state. 

(2) Has sold or concealed his property, or is about to do so, 
to defraud his creditors. 

(3) Has absconded or concealed himself to avoid services of 
process. 

(b) Are attachments ever issued on debts not yet due? 
Ans. Yes, in some states. 

(c) Is this the general rule? 
Ans. No. 

(d) What is required by the courts of most states by way of security, 
when a plaintiff takes out a writ of attachment? 

Ans. The plaintiff is required to file a bond with the court, indemni- 
fying the defendant against loss or damage occasioned by the seizure of 
his property in case the plaintiff fails or neglects to recover judgment. 

Art. 351. — Garnishment. 

(a) What is meant by the term garnishment? 

Ans. It is an attachment of money, credits, or property in the hands 
of a third party. 

(b) Is this form of attachment in frequent use? 
Ans. Yes. 

(c) For what purpose usually ? 
Ans. For the collection of debts. 

(d) Give example. 

Ans. If A. owes B. and C. owes A. , B. may attach the credit of 
A. in C. 's hands and have it applied in payment of A. 's debt to B. 

(e) Is there any way to attain the same result in states where the 
laws make a provision for garnishment? 

Ans. Yes, generally by attachment. 

Art. 352. — Judgment Liens. 

(a) Upon what do judgment liens apply? 

Ans. In many states judgments become a lien upon the real estate 
of the judgment debtor. 

(b) How is it in other states? 

Ans. In other states the lien may be obtained by issuing an execu- 
tion and making a levy. 

(c) What may be done if the judgment remains unpaid upon pre- 
sentation of the lien? 

Ans. The property may be advertised and sold practically as in the 
case of a mortgage. 

(d) May execution levies be made upon personal property? 
Ans. Yes, and the personal property sold to satisfy the claim. 



QUIZ MANUAL 115 

Art. 353. — Exemptions. 

(a) By what states have exemption laws been adopted? 
Ans. By all states of the union. 

(b) What is the meaning of this law ? 

Ans. That certain property of debtors shall be exempt, (that is, free) 
from the liens of judgments, and from seizure by attachment or execution. 

(c) What is the obvious purpose of exemption laws ? 

Ans. It is to prevent a debtor being deprived of his every means 
of support. 

(d) Do you consider this a just provision of law and, if so, why? 
Ans. It is, because it would plainly be against public policy to 

render a debtor helpless, thus making him a public charge. 

(e) Name some of the things which the exemption law of most states 
include. 

Ans. In most states, a homestead of fixed extent or value is preserved 
to the debtor, also wearing apparel, household furniture and provisions, 
necessary domestic animals and the tools or utilities of his trade or pro- 
fession. 

(f) How are the statutes providing exemptions usually construed by 
the courts? 

Ans. They are generally construed liberally in favor of the debtor. 

(g) Name a few of the things that have been held exempt as the 
tools or utilities of trades or profession. 

Ans. (1) The safe of a jeweler. 

(2) The piano of a music teacher. 

(3) A barber's chair. 

(4) A printing-press and type. 

(5) The library and instruments of a teacher or physician, 
(h) What about pensions? 

Ans. Pension money and property bought with pension money is 
exempt. 

(i) What of the proceeds of other exempted property? 

Ans. If exempted property be sold, the proceeds are also exempt. 

(j) What is the case if exempted property under insurance is burned? 

Ans. The insurance money is exempt. 

(k) How long does a homestead, once acquired, remain a homestead? 

Ans. Until changed by the act of the homesteader. 

(1) What are a debtor's rights as to his time, talents and industry? 

Ans. They are absolutely at his disposal. He may sell them or 
give them away. His creditors can lay no claim to them. 

(m) May he give them to his wife? 

Ans. He may, as well as to another. If his wife has a business, he 
may manage it for her without compensation. 

(n) Will the fact that his services increase the value of his wife's 
property give his creditors a right to levy upon that property? 

Ans. It will not. 



Il6 PRACTICAL LAW 

Art. 354.— Tender. 

(a) What effect has a legal tender upon a lien? 

Ans. Mortgages and liens of all kinds are discharged by a legal 
tender of the full amount due at the time of tender. 

(b) What will be the effect if such tender is refused? 

Ans. The holder will forfeit all liens and all interest on the 
debt 

(c) In general, then, what is the effect of a legal tender ? 

Ans. A valid tender stops the running of interest, stops further 
costs of any kind, and releases any pledge or securities, which must, upon 
demand, be delivered to the debtor. 

(d) What constitutes a valid tender? 

Ans. Tender, to be valid, must be made at a proper time and place, 
and if made pursuant to an obligation to pay money, legal tender money 
must be tendered 

Art. 355. — Legal Tender. 

What is legal tender money, and to what amount is each kind legal ? 
Ans. (1) A valid tender to any amount may be made in the United 
States in gold coin, silver dollars, treasury notes, or greenbacks. 

(2) Silver dollars are legal tender up to Ten Dollars. 

(3) Silver smaller than half dollars are legal tender up to 
Five Dollars. 

(4) Nickel and bronze coins are legal tender up to Twenty- 
five cents. 

(5) When any coin is so mutilated that its genuineness can- 
not be determined, it is not legal tender. 

Art. 356. — Objections to Tender. 

(a) Is it always material if tender is made in something other than 
money; as, for- example, by check? 

Ans. No. If payment was not refused for that reason. 

(b) From the preceding question, then, do you reason that a refusal 
of tender should always be accompanied by reasons? 

Ans. Yes, by all means, because objections not made at the time of 
tender are usually deemed waived. 

Art. 357. — Amount to be Tendered. 

(a) In what amount should a tender be made? 

Ans. To be thoroughly safe, a tender should be made in legal tender 
money, in the exact amount to be paid. 

(b) Is it sufficient to say to the obligee "Here is the exact amount 
of my debt? 

Ans. No, the money must be produced and submitted by the obligee 
or his agent, to be counted. 



QUIZ MANUAL 117 

(c) What precaution is it always best to take when making a tender? 
Ans. It is always best to do so in the presence of witnesses, as proof 
of tender may become important. 

Art. 358. — Keeping the Tender Open. 

What can you say of the necessity of keeping the tender open? 

Ans. A tender must be kept good. That is to say, if the obligee 
changes his mind and decides to accept the amount of a rejected tender, 
the obligor must make payment or the effect of the tender (at least so 
far as to stoppage of interest and costs is concerned) will be lost. 

Art. 359.— Tender Admits Debt. 

(a) Does one in any way bind himself by making a tender upon a 
disputed claim? 

Ans. Yes, he admits the indebtedness to the amount of the tender. 

(b) What will be the effect if it be afterward shown that the amount 
tendered was insufficient to pay the whole obligation then due ? 

Ans. The tender will be treated as ineffectual. 

(c) In the last case, can the supposed obligor successfully disclaim 
that he owes the amount he tendered? 

Ans. No, he cannot. 

Art. 360.— Payment. 

(a) Since payment is merely an accepted tender, what necessarily 
follows ? 

Ans. It follows that payment discharges all liens, and cancels the 
indebtedness. 

(b) When full payment is made what right should the obligor 
always insist upon? 

Ans. The surrender of the obligation paid and the release of all 
securities collateral thereto. 

(c) Can the obligor, upon payment in full, compel the obligee to 
give a receipt in full? 

Ans. No, unless the obligee has contracted to do so. 

(d) A receipt stating that the maker has received payment in full 
of all demands, is said to be what class of evidence, or proof? 

Ans. It is taken as prima facie evidence. 

(e) What is meant by this term prima facie evidence? 

Ans. It means evidence to be accepted as proof until disproved. 

Art. 361. — Payment to Wrong Person. 

(a) What will be the effect if an obligor pays a debt to an obligee 
after the obligee has assigned it to a third party? 

Ans. Unless he has been notified of the assignment, the obligor 
will be released by making payment to the original obligee. 



Il8 PRACTICAL LAW 

(b) From this we should deduce what to be the duty of the 
assignee ? 

Ans. We learn that the assignee should always promptly notify the 
obligor of an account or non-negotiable obligation, of the assignment. 

(c) Suppose that after due notice of the assignment of an obligation, 
the obligor pays the original obligee what will be the effect? 

Ans. The obligor will not be released thereby, but must still pay to 
the assignee. 

(d) What will be the effect if an obligor pays the amount of a nego- 
tiable instrument to a person who does not produce and surrender the 
instrument ? 

Ans. He may be held to pay the amount over again to any holder 
in due course. 

(e) For the foregoing reason, what should the obligor demand of 
the obligee before paying for a note or bill which is supposed to have been 
lost, stolen or destroyed? 

Ans. The obligor should demand of the obligee a bond of indemnity 
indemnifying the obligor against any loss or damage by reason of any 
possible future presentment of the instrument in question. 

Art. 362. — Accepting Notes, Checks, and Orders in Payment. 

Does the accepting of notes, checks or orders necessarily constitute 
a payment of a debt? 

Ans. No, not in the absence of an express and definite agreement to 
the effect that it shall do so. 

Art. 363. — Voluntary Payment. 

(a) Can one who pays a debt for another recover from the debtor ? 
Ans. Only in case such payment can be clearly shown to have been 

made at the debtor's request. 

(b) In case the payer cannot hold the original debtor, can the 
original debtor substantiate a claim that the debt has been paid ? 

Ans. Yes, the original debtor can avoid any further payment, but 
the payer is without remedy from the debtor. 

(c) What, then, is the proper or best course to follow, when paying 
the debt of another? 

Ans. To take an assignment in writing of such debt. When this 
is done the payer may enforce his claim against the debtor to the same 
extent that the assignor could have done. 

Art. 364. — Compromise. 

When will a check sent discharge a claim? 

Ans. When accompanied by a letter explaining that the check is 
tendered in payment of a claim which is unliquidated or in dispute. 

Art. 365. — Accord and Satisfaction. 

(a) Can an agreement to accept a smaller sum of money as full 



QUIZ MANUAL 119 

payment of a liquidated and undisputed larger sum, when without con- 
sideration, be made to hold? 

Ans. It is absolutely void unless done for a definite and understood 
consideration. 

(b) What will be the effect if the debtor does something in consid- 
eration of a smaller payment, which he should not otherwise have done 
by contract? 

Ans. The agreement on the part of the creditor to accept smaller 
payment, will then be sustained. 

Art. 366. — Application of Payment. 

(a) When a debtor owes several debts due to the same obligee and 
makes a payment, has the debtor a right to say upon which debt the pay- 
ment shall apply? 

Ans. He has. He may even demand that the payment be applied 
upon a secured debt, though he may owe others that are unsecured. 

(b) What is the case providing the debtor gives no instructions as 
to what debt a payment is to be applied? 

Ans. The creditor may accept a part payment of any debt due. 

(c) May a creditor apply a payment on an unsecured debt when the 
debtor has secured debts in the creditor's favor? 

Ans. Yes, if no stipulation or objection is made by the debtor. 

Art. 367. — Collection of Debts. 

(a) What caution should always be used in connection with collect- 
ing debts? 

Ans. The creditor should use great care that he be drawn into no 
illegitimate collecting schemes, either of himself or through an agent. 

(b) Why such special caution? 

Ans. Tile principal is responsible for the acts of his agent, and 
frequently business men are successfully sued because of questionable 
methods of their collecting agencies? 

Art. 368. — Procedure in Collection. 

(a) Name seven logical steps of procedure in the collection of 
a debt. 

Ans. (1) Ascertain as fully as possible the financial condition, 
resources and liabilities of the debtor. 

(2) Present the claim and attempt to procure payment of 
all, or at least a part, immediately in money. 

(3) If payment is refused or delayed, attempt to procure a 
mortgage, pledge, or approved note as security. 

(4) If security is refused and a crisis in the debtor's affairs 
seems imminent, prepare to make an attachment levy if there is suffi- 
cient unincumbered property, or if the debtor has friends who are likely 
to aid him. This maybe done by quietly issuing attachment, then going 



120 PRACTICAL LAW 

with an officer to the debtor and telling him what is to be done if settle- 
ment is not made, pointing out to him that his credit will suffer; that 
other creditors may petition him into bankruptcy. Induce him, if possible, 
to give a note signed by an approved surety or guarantor. 

(5) If debtor is without unincumbered assets, and he has no 
friend who is likely to become his surety or guarantor, resort to per- 
suasive methods. Call upon him at stated times. Remember that 
gentlemanly treatment, firmness and punctuality will accomplish more, 
as a rule, than bluff and bluster. 

No matter how worthless the claim, never let the debtor know you 
think it worthless. Give him to understand you consider him a man of 
honor who will pay as a matter of course. 

(6) If, after exhausting every means, you are unable to pro- 
cure any payment, induce the debtor to give you his note. Endeavor 
to have him keep the interest upon this obligation from falling into 
arrears. Keep the obligation in force. However improbable it may 
seem at the present moment, remember that the debtor may some day, 
by his own efforts, or by some freak of fortune, be able to pay. 

(7) If the debtor refuses to give even an unsecured note, it is 
usually the best practice to place the matter in court and procure judg- 
ment. Keep the judgment renewed. It may prove worthless at the 
very end, but the policy is correct, and you will gain by it far oftener 
than you will lose. 

Art. 369. — Collection of Outlawed Claims. 

(a) What law is it that all the states have limiting the collection of 
claims ? 

Ans. The Statutes of Limitation. 

(b) Is this law an unmixed good? 

Ans. No, it often works a hardship to creditors. 

(c) What do you think would be the result if the Statutes of Limita- 
tion were abolished? 

Ans. It would give rise to vastly greater evils. 

(d) Mention some of the dishonest practices which gave rise to the 
enactment of the Statutes of Limitation. 

Ans. Before such statutes were enacted, parties might, and often did, 
wait until witnesses were scattered or dead, papers lost or destroyed, 
circumstances forgotten and conditions changed, and then proceed to 
enforce claims against which successful defense could have been made 
within a reasonable time after the cause of action arose. 

(e) Is the notion that some seem to have, that the Statutes of Limita- 
tion are for the benefit of the dishonest a correct one? 

Ans. Decidedly not. They are intended to keep stale claims out of 
court, to discourage indifference, and to encourage diligence. 

(f) Is the fact that a claim is barred by the Statutes of Limitation 
conclusive proof that the claim is worthless ? 



QUIZ MANUAL 12 1 

Ans. No, an honest man's debt never outlaws. Besides many are 
too ignorant, and many others too proud to take advantage of such a law. 

Art. 370. — When the Statute Becomes Operative. 

(a) When does the Statutes of Limitation become operative? 
Ans. From the time of last payment of principal or interest. 

(b) Suppose no payment has been made? 
Ans. From date of maturity of the obligation. 

(c) What is the time ? 

Ans. The time is regulated by the statutes of the several states, 
which must be ascertained. 

(d) What extra allowance is made by some of the states? 

Ans. In some states three days grace is allowed beyond the due date. 

(e) Is this the case in this state ? 
Ans. (Answer according to facts). 

(f) How is the time computed on running accounts which have had 
no payments? 

Ans. The limitation runs from date of each item. 

(g) What governs the limitation upon an account stated (i. e. , 
where the parties have had a settlement and have agreed upon a balance 
due)? 

Ans. The limitation runs from the date of settlement. 

(h) What is the case upon a mutual open account made up of charges 
and credits? 

Ans. The limitation runs from the date of the last item be it charge 
or credit. These rules are general, subject to change by the various 
state statutes. 

Art. 371. — Suspension of Statute. 

(a) When are the Statutes of Limitation usually held to be in sus- 
pension ? 

Ans. During the absence of the debtor from the state where the 
debt is payable. 

(b) What is the case if the debtor is followed to another state and 
sued? 

Ans. The limitation law of the state where suit is brought governs. 

Art. 372. — Limitation Withdraws Remedy. 

(a) Do the Statutes of Limitation invalidate a debt? 
Ans. No, it merely withdraws the tardy claimant's remedy. 

(b) What is necessary to be done by a debtor to avail himself of the 
pretection of the Statutes of Limitation? 

Ans. He must insist upon the benefit of the statutes, before judgment 
is entered against* him. 

(c) Do debtors often fail to gain the benefit of the Statutes of Limita- 
tions because of this neglect? 



122 PRACTICAL LAW 

Ans. Yes, it is not unusual, through ignorance or indifference, to 
permit creditors to recover judgment on outlawed claims? 

Art. 373. — Renewal. 

(a) What is the effect of a new, written promise to pay, or a partial 
payment of an outlawed debt? 

Ans. It renews the obligation, putting it upon the same footing 
as originally. 

(b) What is the effect when one of several joint debtors makes a 
part payment or renews the debt? 

Ans. It renews the obligation as to him only. 

Art. 374. — Unauthorized Application No Renewal. 

(a) May a payment made by a debtor owing several bills be applied 
to an outlawed bill? 

Ans. Yes, in the absence of instructions to the contrary. 

(b) Will such an application renew the entire outlawed claim? 

Ans. No, an unauthorized application of a payment upon an out- 
lawed debt produces no renewal, but may apply to the amount of that 
payment only. 

Art. 375. — Written Acknowledgment. 

What must be the nature of the terms authorizing an instru- 
ment to be taken out of the statute of frauds? 

Ans. The terms must be distinct and unambiguous. The debt 
must be sufficiently described to be identified. 

Art. 376. — Assignments for Benefit of Creditors. 

(a) What provision regarding assignments is made by the common 
law, and by the statutes of most states ? 

Ans. They permit a debtor to assign all his property to a trustee to 
be sold by the trustee for the benefit of all creditors. 

(b) How do the statutes of some states differ in this? 

Ans. In that the assignor is permitted to select and prefer certain 
creditors. 

(c) Which is most advantageous to the creditors; an assignment 
without preference, or bankruptcy proceedings? 

Ans. An assignment without preference, because the cost of ad- 
ministrating the estate is less than in bankruptcy proceedings. 

(d) Which is the better for the debtor? 

Ans. Bankruptcy proceedings, as the debtor is released from 
practically all further liability whether his estate pays his creditors 
fully or only in part, while by assigment he remains liable for unpaid 
balances. 

Art. 377. — Bankruptcy. 

(a) How is bankruptcy divided? 

Ans. Into two classes, voluntary and involuntary. 



QUIZ MANUAL 123 

(b) Define each. 

Ans. Voluntary bankruptcy is that which results from the debtor's 
own petition. Involuntary bankruptcy is that which results from the 
petition of persons other than the debtor. 

Art. 378.— Who May Become Bankrupt? 

(a) Who may become bankrupt? 

Ans. Any natural person who owes debts may become a voluntary 
bankrupt. 

(b) May a corporation become a voluntary bankrupt? Why? 
Ans. No. A corporation is not a natural person. 

(c) Who may be adjudged an involuntary bankrupt? 

Ans. Any natural person (except a wage earner or a person engaged 
chiefly in tilling the soil) owing debts to the amount of $1000.00 or over. 

(d) What companies and corporations may be adjudged involuntary 
bankrupts? 

Ans. An unincorporated company, or bank, or any corporation 
engaged principally in manufacturing, trading, printing, publishing, 
mining, or mercantile pursuits, owing debts to the amount of $1000.00 
or over. 

Art. 379. — Acts of Bankruptcy. 

(a) What always leads to a judgment of involuntary bankruptc}'? 
Ans. Some one or more of the acts of bankruptcy, as follows: 

(1) Having conveyed, transferred, concealed, or removed, or 
permitted to be concealed or removed, any part of his property with 
intent to hinder, delay or defraud his creditors, or any of them. 

(2) Having transferred, while insolvent, any portion of his 
property to one or more of his creditors with intent to prefer such 
creditors over his other creditors. 

(3) Having suffered or permitted, while insolvent, any 
creditor to obtain a preference through legal proceedings, and not having 
at least five days before a sale or final disposition of any property 
affected by such preference vacated or discharged such preference. 

(4) Having made a general assignment for the benefit of 
his creditors or, being insolvent, having applied for a receiver or trustee 
for his property, or when, because of insolvency, a receiver or trustee has 
been put in charge of the debtor's property. 

(5) Having admitted in writing his inability to pay his 
debts and his willingness to be adjudged a bankrupt on that ground. 

(b) When may a judgment of bankruptcy be taken? 

Ans. A person, firm, or corporation capable of bankruptcy may be 
adjudged a bankrupt if shown to have performed an act of bankruptcy 
at any time within four months preceding the filing of the petition for 
such adjudication. 



124 PRACTICAL LAW 

Art. 380. — Insolvency. 

(a) What step is necessary before bankruptcy involving insolvency 
can be declared? 

Ans. The insolvency must be proved. 

(b) When is a debtor deemed by law to be insolvent ? 

Ans. When his whole property shall not, at a fair valuation, (pres- 
ent market value), be sufficient in amount to pay his debts. 

(c) At what valuation should bills and accounts receivable be 
listed? 

Ans. At their actual, not necessarily their nominal, value. 

Art. 381. — Discharge. 

In consideration of a surrender of all of his property not exempt from 
execution, the court has authority to discharge the bankrupt from all 
his provable debts except what? 

Ans. (1) Taxes. 

(2) Alimony. 

(3) Liabilities arising through fraud, embezzlement, mis- 
appropriation, or defalcation while acting as an officer, or in any fiduciary 
capacity. 

(4) Liabilities arising through false representations, or for 
wilful or malicious injuries to the person or property of another, or for 
the maintenance and support of his wife and child. 

(5) Claims which have not been duly scheduled in time for 
proof and allowance, with the name of the creditor, if known to the 
bankrupt, unless such creditor had notice or actual knowledge of the 
proceedings in bankruptcy. 

Art. 382.— Debts First Paid. 

(a) What debts must be defrayed before the general creditors can 
be paid out of the proceeds of the bankrupt's estate? 

Ans. (1) Taxes. 

(2) Cost of preserving the bankrupt's estate. 

(3) Fees and costs of administration. 

(4) Wages of workmen, clerks and servants not exceeding 
$300.00 each, earned within three months before the proceeding was 
commenced. 

(5) Bona fide secured claims, and claims having lawful priority. 

(b) How will all other claims be paid ? 

Ans. Holders of claims not falling within the classes above enu- 
merated will be paid without preference and all alike, such percentage 
of their claims as the residue of the bankrupt's estate affords. 

Art. 383. — Uses of Bankruptcy. 

By whom, and for what purpose is bankruptcy commonly resorted 
to? 



QUIZ MANUAL 12 5 

Ans. (1) By debtors to rid themselves of insupportable debt, and so 
obtain a new start in life, debt free. 

(2) By creditors, as a convenient means of winding up estates. 

(3) It is particularly useful in preventing preferences being 
shown certain creditors, thus securing an equitable distribution of the 
debtor's estate. 



GENERAL EXAMINATION NO. 5. 

Embracing the subjects of Loans, Credits and Collections treated 
in Articles 318 to 383 inclusive, appearing in Practical Law. Answers 
to the following questions should be neatly written and handed to the 
teacher. Number each answer to correspond with the question. Write 
your name and the current date on each sheet. Mark your paper Ex- 
amination No. 5. Write only on one side of the sheet, and avoid erasures, 
blots, check marks, or other disfigurements. 

1. Give two ways of increasing the capital of a firm. 

2. Name several kinds of securities. 

3. Name two classes of bonds, and explain the difference between 
them. 

4. Tell how many classes of mortages you know of, and define each. 

5. (a) What is meant by foreclosure? 

(b) Give two ways in which a foreclosure may be brought about. 

6. Tell what you can about the subject of "Redemption." 

7. What is meant by the "Right of Subrogation?" 

8. What is the chief object of a bill of sale ? 

9. What is the effect of assigning a mortgage ? 

10. When Corporate Stock is offered as a pledge, of what should the 
pledgee assure himself? 

11. (a) What is a lien? 

(b) Name two ways in which liens may be created. 

12. Define "Workman's Lien," and illustrate. 

13. What may a carrier acquire a lien upon? Illustrate. 

14. Name three provisions for acquiring a lien by attachment. 

15. What is meant by the term "Garnishment?" 

16. Is there any way to attain the same result in states whose laws 
make no provision for garnishment? If so, how? 

17. (a) In many states upon what do judgment liens apply? 
(b) How is it in other states? 

18. (a) By what states have "Exemption Laws" been adopted? 

(b) What is the meaning of the law? 

(c) Name a few things that have heen held exempt, as the tools 
or utilities of trades or professions. 

19. (a) What effect has a legal tender upon a lien? 

(b) What will be the effect if such tender is refused? 



126 PRACTICAL LAW 

(c) What is legal tender money, and to what amount is each 
kind legal tender? 

(d) In what amount should a tender be made to be thoroughly 
safe? 

(e) What can you say as to the necessity of keeping the tender 
open? 

(f) Does one in any way bind himself by making a tender upon 
a disputed claim? 

20. What will be the effect if an obligor pays a debt to an obligee 
after the obligee has assigned it to a third party? 

21. When a debtor owes several debts due to the same obligee and 
makes a payment, has the debtor a right to say upon which debt the 
payment shall apply? 

22. What caution should always be used in connection with collecting 
debts? Why? 

23. Name seven logical steps of procedure in the collection of a 
debt. 

24. (a) What law is it that all the states have, concerning the limit- 
ing- of claims? 

(b) What is the object of this law? 

25. (a) What is the effect of a new, written promise to pay, or a par- 
tial payment of an outlawed debt? 

(b) Name and define two classes of bankruptcy, and state when 
one is bankrupt. 



CORPORATIONS. 

Art. 384. — Characteristics. 

(a) Define a corporation. 

Ans. A corporation is a legal person. 

(b) How is its existence affected by the life or death of its share- 
holding members? 

Ans. Its existence is entirely separate from that of the persons 
who own its shares and administer its business. These may die, but 
the corporation will continue unchanged. 

(c) What of the relative liability of the corporation and its individual 
stockholders ? 

Ans. The corporation is not liable for the debts of the stockholders, 
and the stockholders, are not, in general, liable for the debts of the cor- 
poration. 

(d) In whose name does a corporation do business? 

Ans. A corporation acts in its own name, buying, selling, contract- 
ing, suing and being sued, as if an individual. 

(e) Name four points of special advantage to be gained by incorpor- 
ating a business. 



QUIZ MANUAL 127 

Ans. (1) Through the corporation the savings of many are accumu- 
lated and devoted to a single enterprise. 

(2) By means of the corporation, the inventor is enabled to 
ally his ingenuity with capital. 

(3) The tradesman is enabled to interest his assistants in his 
business without surrendering control. 

(4) The promoters of great enterprises are enabled to draw 
together funds from many sources for the purpose of accomplishing a 
common object. 

(f ) What reason can you mention why corporations exist of necessity ? 

Ans. It would be difficult to imagine a partnership having several 
hundred members, each having an equal voice in the management of 
its affairs, each able to bind the credit of all, etc. Many corporations 
have thousands of stockholders. 

Art. 385. — Corporations Compared with Partnerships. 

(a) What is the effect of the death of a partner ? 

Ans. The partnership is immediately dissolved, and its affairs must 
be closed up. 

(b) Would the same result be brought about by one partner selling 
out his interest? 

Ans. It would. 

(c) May money be borrowed upon a partnership interest? 
Ans. No. 

(d) Is a partnership interest readily sold? 
Ans. No. 

(e) By whom are the affairs administered in a corporation ? 
Ans. By a selected body of men called "Directors. " 

(f) Do these directors have unlimited power in transacting business 
for the corporation? 

Ans. They act within certain limits. 

(g) How are these limits fixed? 

Ans. By the charter, and by the by-laws enacted by the stock- 
holders. 

(h) How is a corporation affected by the death of a stockholder ? 

Ans. It goes oh unchanged. 

(i) How does the failure of a corporate enterprise affect the credit 
of its individual members? 

Ans. Not at all. 

(j) How does the death of a stock-holder affect the corporation? 

Ans. In no way. His heirs stand in his stead. 

(k) May money be borrowed upon corporate stock ? 

Ans. It may. 

( 1) How does this affect the credit of the corporation ? 

Ans. It in no way reflects upon the credit of the corporation. 



128 PRACTICAL LAW 

(m) Must a stockholder in a corporation obtain the permission 
of any one before he can sell his shares or any part of them? 

Ans. No, he may sell them at will. 

(n) How is the amount of money which may be placed at the com- 
mand of a corporation limited? 

Ans. Only by the size and soundness of the enterprise. 

(o) What proportion of the great business undertakings are now 
carried on by means of corporations? 

Ans. Practically all. 

Art. 386.— Charter. 

(a) From what source are the powers of a corporation derived ? 
Ans. From the state under whose laws it is created. 

(b) In what instrument are these general powers granted by the 
state expressed? 

Ans. In the charter. 

(c) What states have* statutes under which corporations may be 
formed ? 

Ans. All the states. 

(d) Are these all alike? 

Ans. No, they differ widely, in general scope and requirements, but 
their purposes are similar. 

(e) How many persons may incorporate? 

Ans. Any number not fewer than three, by the laws of most states. 

(f) How, in a general way, is this done? 

Ans. By the incorporators, not less than three, signing and ac- 
knowledging before some officer authorized to take acknowledgments, 
articles of association in writing, specifying the following : 

(1) The name of the corporation. 

(2) The amount of its capital stock and the number of shares 
into which it is divided. 

(3) The place at which the business of the corporation is to be 
conducted. 

(4) The purpose or purposes for which the corporation is 
formed. 

(5) The amount of capital stock subscribed, and the propor- 
tion thereof paid in at the time of organization. 

(6) The duration of the corporation, which in many states 
is unlimited. 

(7) The names and addresses of the incorporators, and the 
number of shares of stock subscribed for by each. 

Art. 387.— Name. 

What restriction is placed upon corporation names? 
Ans. The name assumed by a corporation must not conflict with the 
name of another existing corporation in the same or a similar line of busi- 



QUIZ MANUAL 129 

ness. The use of a name which does so conflict may be enjoined by the 
courts. 

Art. 388. — Capital Stock and Shares. 

(a) What is the capital stock of a corporation? 

. Ans. The capital stock of a corporation is the total amount the 
company is able to obtain by the sale of its stock at par. 

(b) What is meant by shares? 

Ans. By shares we mean the equal parts into which the stock is 
divided. 

(c) When are shares said to be fully paid and non-assessable ? 

Ans. When par value has been paid to the corporation in cash or in 
property. 

(d) What is meant by the term "Treasury Stock?" 

Ans. Shares become treasury stock when they have been once issued 
by the company for par value and have been afterward re-acquired 
by the company through gift or purchase. 

(e) When are shares subject to assessment? 

Ans. When shares are originally sold by the company for less than 
par value they remain subject to assessment for an amount equalling 
the difference between the price paid for them and par. 

(f) Can stock ever, under any circumstances, be issued for less than 
par, and yet remain non-assessable? 

Ans. It can. When it has been once issued at par and afterward 
re-acquired by the company, the company may then reissue it at any 
price fixed by the board of directors, and such reissued stock, though 
sold at less than par, having been once fully paid, remains non-assessable- 

(g) What then, may be said of treasury stock? 

Ans. Fully paid treasury stock is non-assessable, no matter at what 
price issued. 

(f ) What can you say of the face value of shares of stock ? 

Ans. They vary. Usually $100.00 but often $50.00, $25.00, or even 
as low as $1.00, and sometimes $1000.00, or more. 

Art. 389. — Payment of Stock. 

(a) How may stock be paid for? 
Ans. In cash or in property. 

(b) What, in this case, does the term property include? 

Ans. Lands, chattels, leases, good will, trade marks, patents, copy- 
rights and personal services. 

(c) In the absence of fraud, what is taken in many states as con- 
clusive evidence of the value of corporation property accepted in pay- 
ment for shares ? 

Ans. The judgment of the directors. 

(d) Is stock often issued for property of an intangible nature; such 
as, copyrights, good will, etc. ? 

Ans. It is, very frequently. 



130 PRACTICAL LAW 

(e) When stock is issued for property at an over-valuation, what is 
said of it? 

Ans. It is said to be "Watered Stock. " 

Art. 390. — Location. 

(a) Where must the location of the principal place of business 
usually be ? 

Ans. In most cases, within the state where the corporation is char- 
tered. 

(b) With what comparative favor are foreign and domestic corpora- 
tions usually treated by state legislation? 

Ans. Domestic corporations are usually shown more favors. Almost 
all states impose certain restrictions upon foreign corporations. 

(c) Is it within the power of a state to exclude a foreign corporation ? 
Ans. It is. 

Art. 391. — Powers and Purposes. 

(a) What is meant by the powers and purposes of a corporation? 
Ans. The object for which it is created; the means of carrying out 

those objects. 

(b) What states are especially noted for the almost unlimited range 
of purposes for which they will charter corporations ? 

Ans. New Jersey, Maine and Delaware. 

(c) Are the powers they grant much greater than the powers granted 
by other states? 

Ans. They are but slightly greater. 

(d) What limits the powers of a corporation ? 

Ans. The charter granted by the state. A corporation has no powers 
except those conferred upon it by its charter, and such implied powers 
as are necessary to make effective the powers expressly conferred. 

(e) Give an illustration of the above. 

Ans. A corporation having express power to conduct manufacturing, 
would have implied power to acquire land and to build a factory there- 
upon. 

(f) Would a manufacturing corporation have implied power to 
organize subsidiary corporations in other states ? 

Ans. They would not. 

(g) When a corporation performs an act unauthorized by its charter, 
what legal term is applied to the act? 

Ans. The act is said to be ultra viras (beyond power). 

.(h) What can you say of a corporation's benefits or liabilities con- 
nected with an ultra viras act ? 

Ans. A corporation will not be permitted to accept the benefits of 
an ultra viras act and at the same time to shield itself from liability by a 
claim that the act was unauthorized. 

(i) What are the ordinary powers of a corporation? 



QUIZ MANUAL 131 

Ans. They are three-fold, as follows: 

(1) To contract and be contracted with. 

(2) To purchase, hold and deal in property. 

(3) To sue and to be sued. 

All of these acts are to be done within the scope of the corporate 
purposes and pursuant to its charter and by-laws. 

Art. 392. — Subscriptions and Payment Thereof. 

(a) When does one first become a stock holder in a corporation? 
Ans. From the moment of signing the articles of association, which 

includes a statement of the number of shares each has subscribed for, 
duly set opposite the subscribers' names. 

(b) To what does this subscription interest entitle the subscribers? 
Ans. It entitles them to vote at all meetings of the stockholders. 

(c) Is this interest transferable ? 

Ans. It is, even before any certificates of stock have been issued. 

(d) If this subscription interest be transferred, what rights does 
the transfer carry to the transferee? 

Ans. All the rights of the original subscriber. 

(e) May subscriptions be taken in any other way than in connection 
with the articles of association? 

Ans. Yes, subscriptions may be made and accepted either before or 
after the articles of association are signed, and entirely apart from them. 

(f ) When and how are payments upon subscriptions called in ? 
Ans. By notice by the board of directors as the funds are needed 

from time to time. 

(g) In case of default in payment by a subscriber, what may be done ? 
Ans. Payment may be enforced by suit. 

Art. 393. — Duration. 

(a) What can you say of the duration of a charter? 

Ans. In some states perpetual charters are granted. In other 
states corporate existence is limited to a term of years. 

(b) How is continuation usually provided for, when a corporation 
has reached the time limit of its charter ? 

Ans. It may be continued by reorganization without liquidation. 

Art. 394. — Incorporators. 

(a) Who are the incorporators of an institution? 

Ans. The persons who join in forming the corporation are called the 
incorporators. 

(b) What legal limitation is placed upon persons who may become 
incorporators ? 

Ans. Since articles of association are a contract between the signers 
and the corporation formed, it follows that the incorporators must be 
persons capable of binding themselves by contract. 



132 PRACTICAL LAW 

Art. 395. — Recording Articles of Association. 

(a) When is an organization said to become a corporation "de jure?" 
Ans. When the articles of association have been properly filed and 

recorded as required by law. 

(b) What does the expression "de jure" mean? 
Ans. To all the world. 

(c) If, through any neglect, technical compliance with the law re- 
garding the filing and recording of articles of association should be omit- 
ted, what term is applied to the organization? 

Ans. It is said to have become a corporation "de facto." 

(d) What is meant when we say an organization has become a corpo- 
ration "de facto f" 

Ans. It means as to the whole world, except the state under whose 
laws it is created. 

(e) Who can take advantage of the fact that a corporation is im- 
properly formed ? 

Ans. The state alone, and not private individuals. 

(f) What results in case the articles of association are entirely 
foreign to the law under which it assumes to exist, or where incorpo- 
ration is attempted under a void law? 

Ans. No incorporation, either de jure or de facto results, and the 
individual members become partners and remain liable as such. 

(g) What constitutes the measure of the power of a corporation and 
how may it be inquired into ? 

Ans. When a corporation is organized under a general law, the 
statute under which it is formed, together with its articles of association 
constitute its charter. One who would inquire into the authority of a 
corporation must seek it in these instruments. The statutes of the state 
and the articles of association are the measure of the corporation's power. 

Art. 396. — By-Laws. 

(a) What comes next in authority after the charter in the govern- 
ment of corporations? 

Ans. The "By-Laws." 

(b) What are the by-laws? 

Ans. They are rules of conduct formulated by the stockholders for 
the government of the concern. 

(c) Are the by-laws always binding, and if so upon whom? 

Ans. All reasonable by-laws are always binding upon stockholders, 
and upon third parties after being duly notified. 

(d) What limit is there upon the by-laws that may be adopted by 
corporations ? 

Ans. If by-laws are in conflict with the terms of the charter, they 
will be void to that extent. The charter is paramount. 



QUIZ MANUAL 



*33 



(e) How are the dates for holding meetings of stockholders and direc- 
tors fixed ? 

Ans. Usually by the by-laws. 

(f) What are some other provisions usually embodied in the by-laws? 
Ans. (1) The by-laws usually define the powers and duties of the 

officers of the company. 

(2) Provide the date of termination of the fiscal year and the 
time for the payment of dividends. 

(3) They should also, in every case, provide the means for 
their own amendment, unless provision therefor is made by the statute. 

(g) To whom under the laws of some states, may the right to 
make the by-laws be delegated by the stockholders? 

Ans. To the board of directors. 

(h) In case both the stockholders and the directors should formulate 
by-laws and contention arise over the two sets, which would prevail? 

Ans. Those made by the stockholders will prevail. 

(i) Name some of the features commonly covered by a set of by-laws, 
say of a manufacturing company. 



Ans. 



(1 

(2 

(3 

(4 

(5 

(6 

(7 

(8 

(9 

(10 

(11 

(12 

(13 

(14 

(15 

(16 

(17 

(18 

(19 



Date of annual meetings. 

Votes. 

Quorum. 

Proxies. 

Notice of annual meetings. 

Special meetings of stockholders. 

Meetings of board of directors. 

Quorum of directors. 

Powers of board of directors. 

Officers and their duties. 

Joinder of offices. 

Vacancies. 

Checks, drafts and orders. 

Promissory notes. 

Corporate seal. 

Fiscal year. 

Transfers of stock. 

Dividends. 

Amendments. 



Art. 397. — Preliminary Investigation. 

(a) What should one always do before investing? 
Ans. Before investing, investigate. 

(b) With what should one familiarize himself before becoming a 
stockholder in a corporation? 

Ans. With the laws under which the corporation is organized, and 
with the articles of association, and the by-laws. The prospective in- 
vestor should also require and retain a financial statement of the con- 



134 PRACTICAL LAW 

dition of the company, its assets and liabilities, and should learn some- 
thing of its history and of the capacity and integrity of its managing 
officers. 

(c) What other vital point for investigation especially if the cor- 
poration is a new one? 

Ans. The investor should assure himself that he is not paying for 
fictitious values. 

(d) Give an illustration of the last named principle. 

Ans. A. ,B.and C.form a corporation with an authorized capital stock 
of $30,000.00. A. andB. pay up one-half by investing patents of U. S., 
of no present value, but estimated by A. and B. to be worth $15,000.00. 
C put in cash $15,000.00. C has virtually given A. and B. a half interest 
in his $15,000.00 for which he takes in return, a half interest in their 
worthless patent. 

(e) What can you say of the importance of good management? 
Ans. Good management will make almost any business flourish; 

continued bad management will wreck the most promising enterprise. 

(f) How is the inequality between the investment of money and of 
property of unascertained value often corrected ? 

Ans. By issuing a class of shares known as "Preferred Stock." 

Art. 398.— Kinds of Stock. 

(a) How many and what classes of stock shares are commonly rec- 
ognized ? 

Ans. Two classes; common and preferred. 

(b) Define each class of stock shares. 

Ans. Common stock is without special contractual advantages. 
Preferred stock does enjoy such advantages. 

(c) Enumerate some of the advantages of preferred stock over 
common stock. 

Ans. (1) Preferred stock is usually entitled to payment of divi- 
dends to a certain amount before the common stock can participate in 
the corporation's profit. 

(2) Preferred stock may be either cumulative, or noncu- 
mulative. When cumulative, it must be paid the amount of all passed 
dividend whenever there are sufficient declared dividends to pay them, 
before any dividends can be paid upon the common stock. When non- 
cumulative, a dividend passed is lost. 

(d) Upon what are the preferences accorded to preferred stock 
based ? 

Ans. Upon contract between the stockholders and the corporation. 

(e) How are these terms usually set forth? 

Ans. The terms of the contract are usually printed upon the certifi- 
cate of preferred stock. 

(f ) Do these terms vary to any great extent ? 
Ans. Yes, greatly in different corporations. 



QUIZ MANUAL 135 

(g) What is meant by the term "fully participating?" 

Ans. This means that after paying a certain per cent upon the pre- 
ferred shares, they are still entitled to share with the common stock, 
without distinction in all remaining declared dividends. 

(h) Are preferred shares ever issued containing all these privi- 
leges ? 

Ans. They are, sometimes. 

(i) Are preferred shares sometimes made non-participating ; that is, 
so that they cannot participate in any but the first preferred rate of gain ? 

Ans. Yes. 

(j) Illustrate how this might prove a disadvantage. 

Ans. The common stock might prove so profitable as to bear 25% over 
and above the preferred 6%. The 6% preferred non-participating 
shares would then be producing their owners 6% profit, while the common 
shares would be producing their owners 25%. 

(k) Generally, which is considered the more valuable? 

Ans. Usually preferred shares are the more valuable. 

Art. 399. — Voting Powers. 

(a) How are the stockholders' powers of voting controlled and 
regulated ? 

Ans. Unless otherwise provided by law, each share of stock entitles 
the holder thereof to one vote on all subjects coming before an} r meeting 
of the stockholders. 

(b) Is there any distinction between the voting powers of common 
and preferred stock? 

Ans. In the absence of contrary provision, there is no distinction. 

(c) Is there ever any preference shown to the holders of one class 
of shares over the holders of the other class, as regards the management 
of the affairs of the corporation? 

Ans. Yes, in the absence of the statutes to the contrary, the hold- 
ers of common stock are sometimes given this preference by limiting the 
holders of preferred stock to a minority representation only. 

(d) What is the principle prompting this ? 

Ans. Since the holders of common stock can receive no profit until 
the preferred stock dividends have been paid, it is often deemed just to 
give them the management of the corporation, so that they may have the 
fullest opportunity to make a profit for themselves, as well as for the 
holders of the preferred stock. 

(e) What results if any one stockholder owns one share or more in 
excess of half of the issued stock of a corporation? 

Ans. He can control the corporation. 

(f) How can he do this? 

Ans. He can choose at least a majority of the board of directors, 
and in states where the cumulative voting law is not in force, he can 
elect the entire board. As the business of a corporation is controlled by 



136 PRACTICAL LAW 

its board of directors and that board's agents, the control of the board 
is the control of the corporation. 

Art. 400. — Cumulative Voting. 

(a) What is the meaning of the expression "cumulative voting?" 
Ans. By statute in a number of states, each stockholder may 

accumulate all of his votes upon one candidate, or he may divide them 
among several candidates, as he sees fit. 

(b) What advantage may be derived from such cumulation of votes ? 
Ans. It affords minority shareholders greater opportunity for self 

protection. 

(c) How? 

Ans. (1) By concerted action in using this right, less than half 
the stock of a corporation can elect a minority of the directors. 

(2) Any one stockholder may be able to elect one or more 
members of the board friendly to him and to his interests. 

Art. 401. — Proxies. 

(a) May shares be voted by the holders thereof in any other way 
than in person? 

Ans. Yes, shares may be voted by an agent holding a power of 
attorney to act for the shareholders; this is called voting by proxy. 

(b) May this power once granted to an agent be revoked? 

■ Ans. It may be at will of the shareholder, unless that granted 
power was coupled with the interest. 

(c) To whom may the power to vote by proxy be given ? 
Ans. To any one capable of acting as an agent. 

(d) Need such agent be himself a stockholder ? 
Ans. No. 

Art. 402— Transfer of Stock. 

(a) What do the by-laws ,of corporations usually provide regarding 
the transferability of stock? 

Ans. That it shall be transferred upon the books of the company 
only. 

(b) Does this by-law invalidate transfers made by indorsement and 
transfer only? 

Ans. No, it cannot. The stockholder has that right regardless 
of the by-laws to the contrary, and the transferee's title is good. 

(c) What, then, is the purpose of such a provision in the by-laws? 
Ans. That the corporation may depend upon its records, as to who 

are its stockholders. 

(d) Has the corporation a right to depend upon its records? 
Ans. Yes; if a corporation without notice of this transfer pays a 

dividend to A. , B. cannot recover the dividend from the corporation. 



QUIZ MANUAL I 37 

(e) How are the records of such transfers kept by the corporation? 
Ans. In a special book called the "Transfer Record." 

(f) How is this transfer of stock regularly made? 

Ans. By the transferee indorsing an assignment upon the stock certifi- 
cate and surrendering the certificate to the company for reissue pursuant 
to the terms of the transfer. 

(g) What should the company do? 

Ans. The surrendered certificate should be cancelled and retained 
by the company, a new certificate being issued to the proper party. 

(h) Has the corporation a right to refuse to transfer stock to a bona 
fide transferee? 

Ans. No, not even though the corporation feels that it will be 
detrimental to the company's interests. 

Art. 403. — Powers and Duties of Officers. 

(a) Primarily, the officers of the corporation consist of whom? 
Ans. Of a Board of Directors. 

(b) What elective and appointive power have the board of direc- 
tors, as regards officers? 

Ans. This board of directors may, and usually does, elect from 
its own number, a. president, vice-president, secretary, and a treasurer. 
It may also appoint such other agents as the purposes of the corporation 
require. 

(c) May the board of directors go so far as to appoint even a man- 
ager, or legal counsel ? 

Ans. They may, and frequently do. 

Art. 404. — Directors. 

(a) What are the directors responsible for in general? 

Ans. In general, the directors of a corporation are charged with 
the management of the property and affairs of the company. 

(b) Has a director, as such, more authority than any other stock- 
holder ? 

Ans. No, excepting during a session of the board duly convened. 

(c) When only have a majority of the board of directors power to 
bind the company by their action, and how ? 

Ans. Only at a session of the board duly called, and by motions 
or resolutions duly -passed. 

(d) May directors be given special authority as agents, to bind the 
company ? 

Ans. Yes, directors or other persons, may be given authority as 
agents, to bind the company by their acts. 

(e) How does the agent of a corporation compare with the agent of 
an individual? 

Ans. The agent of a corporation stands upon the same footing as 
the agent of an individual. 



I3& PRACTICAL LAW 

(f) If a corporation continues for any considerable time to permit 
an employee to transact its general business can it later deny that such 
agent had authority? 

Ans. It cannot. He becomes their agent, ipso facto. 

Art. 405. — President. 

(a) Has the president by virtue of his office alone, any more authority 
than any other stockholder ? 

Ans. No, except as such power is delegated to him by the charter, 
the by-laws, or by the acts of the board of directors. 

(b) Are the powers of the president varying in degree? 

Ans. Yes, he may be a mere figure-head, or almost an absolute 
dictator. 

(c) Must the company honor the president's acts even though he 
exceeds his authority? 

Ans. No, if the president clearly exceeds his authority, the corpo- 
ration is not bound by his acts, unless it ratifies them. 

Art. 406. — Vice-President. 

In general, has the vice-president more power than other stock- 
holders ? 

Ans. No, except in case of the absence or disqualification of the 
president, when the vice-president succeeds to his full power and 
authority. 

Art. 407. — Secretary. 

(a) In general, what are the duties of the secretary? 

Ans. The secretary of a corporation is the keeper of the records of 
its meetings. 

(b) How should these be kept? 

Ans. These records should be kept fully and with great care, usually 
in a book provided for this purpose. 

(c) What are these official records said to be ? 
Ans. They are the memory of the corporation. 

(d) Name some things that should appear in these records. 
Ans. (1) All motions, and resolutions, including by-laws. 

(2) Dates of all meetings, how called. 

(3) Names of all stockholders and number of shares held by 
each. 

(4) The names of the officers and their terms of office, etc. 
In fact, everything of importance pertaining to the company's business. 

(e) What should be the first official act of each meeting ? 

Ans. The reading, correction and adoption of the minutes of the 
preceding meeting. 

(f) May the secretary have other duties and powers? 

Ans. He may, and frequently does have other duties assigned him, 



QUIZ MANUAL 139 

and other powers conferred upon him by the board of directors or 
designated by the charter, or the by-laws. 

Art. 408. — Treasurer. 

(a) Who is the treasurer? 

Ans. He is the custodian or keeper of the corporate funds. 

(b) Where should these funds be kept? 

Ans. In a depository selected by the board of directors. 

(c) What steps are frequently taken to insure the safe handling 
of the corporate funds? 

Ans. It is quite customary to place the treasurer under bond for 
the faithful performance of his official duties, and for prompt surrender 
to his successor of all books and property incident thereto. 

(d) What should the treasurer do beside merely receiving and paying 
out all moneys? 

Ans-. The treasurer should keep an accurate record of all receipts 
and disbursements. 

(e) Wherever practicable, what further evidence of all payments 
should be provided? 

Ans. All disbursements, even of small sums, should be evidenced by 
proper vouchers, which should be carefully preserved. 

(f) What further caution should be exercised? 

Ans. The treasurer's books should be audited by a disinterested 
committee or an expert accountant, at least once each year. 

(g) Is this for the protection of the company only? 

Ans. No, it is equally for the protection of the treasurer, and should 
be welcomed by him. 

Art. 409.— Salaries of Officers. 

(a) Are the directors, as such, entitled to salaries? 

Ans. Only when so expressly agreed by provision therefor in by- 
laws or charter. 

(b) May a director become entitled to a salary by reason of special 
services ? 

Ans. He may. Thus, it is perfectly proper to provide that the 
president, secretary, treasurer, manager, and attorney shall have a fixed 
salary. 

(c) Would it be proper to provide that directors should receive com- 
pensation for attendance upon the meetings of the board? 

Ans. It is perfectly proper, but in the absence of any such pro- 
vision, there is no implied contract on the part of the corporation to 
make such compensation. 

(d) Does the above apply equally concerning salaries to officers? 
Ans. It does. 



140 PRACTICAL LAW 

(e) Will salaries voted by directors to themselves, or fixed by those 
in control of the corporation to the detriment of the corporation's minor- 
ity stockholders, be held illegal? 

Ans. Generally, yes, if it appears that such salaries are excessive. 

Art. 410. — Annual Reports. 

(a) Make a general statement as to the requirement of the laws 
of most states regarding annual reports of corporations. 

Ans. Under the laws of most states, corporations are required to 
file with some state officer, (usually the secretary of state) , an annual report 
setting forth certain information designed for the benefit of the state 
and the public at large. 

(b) What can you say of the failure of the corporation to do this? 
Ans. Penalties are usually imposed for failure to comply with this 

requirement. 

(c) Does the law favor penalties? 

Ans. It does not, hence the state must do everything required on 
its part in order to charge the corporation, its officers and stockholders 
with liability upon default. 

(d) What is the usual penalty imposed for failure to file the annual 
report in accordance with the requirements? 

Ans. Usually the penalty is cancellation of the charter of the cor- 
poration. 

Art. 411. — Receivers. 

(a) What is usually done upon a corporation becoming insolvent 
or grossly mismanaged? 

Ans. It is generally possible to cause the company to be placed in 
the hands of a receiver. 

(b) Who may cause this to be done? 

Ans. The creditors of the corporation, or its stockholders or directors. 

(c) Who is a receiver ? 

Ans. A receiver is merely the agent of the court for the purpose 
of managing the business of the company with a view to correcting its 
defects if possible, and again restoring it to its stockholders. 

(d) If the receiver finds correction impossible, what is done ? 

Ans. The receiver proceeds to wind up the affairs of he concern, 
collecting its assets, and distributing them to its creditors. 

(e) What disposition is made of surplus funds, should there be any 
after all creditors are satisfied, and all expenses paid, including receiver's 
services ? 

Ans. They are divided ratably among the stockholders, usually 
showing a preference to the holders of preferred stock, if there be any. 

Art. 412. — Dissolution. 

(a) By whose consent may a corporation usually be dissolved? 
Ans. By the consent of the stockholders. 



QUIZ MANUAL 141 

(b) When the corporation's charter expires, what privileges have 
the stockholders, usually? 

Ans. They usually may either re-organize or liquidate. 

(c) If the latter course is chosen, what are the proceedings ? 

Ans. The assets of the concern are sold, its debts and expenses 
of administration paid, and the net residue, if any, is divided among 
the stockholders according to their respective holdings. 

(d) Do holders of preferred stock have any advantage over holders 
of common stock in the process of liquidation? 

Ans. Yes,, upon dissolution, holders of preferred stock must, usually, 
be paid the par value of their stock, plus accumulated dividends due, 
before any payment can be made to the holders of common stock. 



GENERAL EXAHINATION NO. 6. 

Embracing the subject of Corporations treated in Articles 384 to 
412 inclusive, appearing in Practical Law. Answers to the following 
questions should be neatly written and handed to the teacher. Number 
each answer to correspond with the question. Write your name and the 
current date on each sheet. Mark your paper Examination No. 6. 
Write only on one side of the sheet, and avoid erasures, blots, check 
marks, or other disfigurements. 

1. What is a corporation? 

2. Give six points of comparison between corporations and part- 
nerships. 

3. Wliat is a charter and how is it obtained? 

4. Define the following terms: Capital Stock, Shares, Par Value, 
Treasury Stock, Watered Stock. 

5. What is meant by the powers and purposes of a corporation ? 

6. What states are especially noted for the almost unlimited range 
of purposes for which they will charter corporations? Are the powers 
they grant greater than the powers granted by other states? 

7. (a) What limits the powers of a corporation? 
(b) What is meant by subsidiary powers ? 

8. Who are the incorporators of a corporation, and what legal 
limitation is placed upon them as to numbers and capacity? 

9. (a) Define the terms: "dejure," "defacto," "ipso facto." 

(b) When is an organization said to become a corporation dejure? 

10. What comes next in authority after the charter in the govern- 
ment of corporations? 

11. Name and number at least 15 of the 19 important features com- 
monly covered by a set of by-laws, say of a manufacturing company. 

12. What should one always do before investing? 

13. (a) How many and what classes of stock shares are commonly 
recognized ? 



142 PRACTICAL LAW 

(b) Define each. 

(c) Give some of the advantages of each under varying circum- 
stances. 

14. fiow are stockholder's voting powers controlled and regulated ? 

15. What is meant by the expression "Cumulative Voting," and 
what advantage may be derived from it ? 

16. Tell what you can of the term "proxy" as associated with cor- 
porations. 

17. (a) Primarily, the officers of a corporation consist of whom ? 
(b) What elective and appointive power have they? 

18. Number and name the usual officers of a Board of Directors of 
a corporation, giving briefly the general duties of each. 

19. (a) What steps are frequently taken to insure the safe handling 
of the corporate funds? 

(b) What is necessary to be done to discharge all the obligations 
thus imposed? 

20. What can you say regarding salaries of directors and officers, 
as such? 

21. Tell what you can concerning the Annual Reports of corporations. 

22. (a) What is usually done upon a corporation becoming insol- 
vent? 

(b) Who may cause this to be done ? 

23. By whose consent may a corporation usually be dissolved? 

24. When a corporation's charter expires, what privileges have the 
stockholders, usually? 

25. Do holders of preferred stock have any advantage over holders 
of common stock in the process of liquidation? 



JAN 31 1912 



One copy del. to Cat. Div. 



JM* 31 



o1? 



